The
information in this preliminary prospectus supplement is not
complete and may be changed. A registration statement relating
to these securities has been filed with and declared effective
by the Securities and Exchange Commission. This preliminary
prospectus supplement and the accompanying prospectus are not an
offer to sell and are not soliciting offers to buy these
securities in any state where such offer or sale is not
permitted.
|
Filed
pursuant to Rule 497
Registration Statement
No. 333-155806
SUBJECT TO COMPLETION, DATED
JANUARY 12, 2010
PRELIMINARY
PROSPECTUS SUPPLEMENT
(to Prospectus dated May 1, 2009)
Shares
Main Street Capital
Corporation
Common
Stock
We are offering for
sale shares
of our common stock. We are a principal investment firm focused
on providing customized debt and equity financing to lower
middle-market companies that operate in diverse industries. We
seek to fill the current financing gap for lower middle-market
businesses, which have more limited access to financing from
commercial banks and other traditional sources. Given the
current credit environment, we believe the limited access to
financing for lower middle-market companies is even more
pronounced.
Our principal investment objective is to maximize our
portfolios total return by generating current income from
our debt investments and capital appreciation from our equity
and equity-related investments, including warrants, convertible
securities and other rights to acquire equity securities in a
portfolio company. We are an internally managed, closed-end,
non-diversified management investment company that has elected
to be treated as a business development company under the
Investment Company Act of 1940.
Our common stock is listed on the Nasdaq Global Select Market
under the symbol MAIN. On January 11, 2010, the
last reported sale price of our common stock on the Nasdaq
Global Select Market was $16.05 per share.
Investing in our common stock involves a high degree of risk,
and should be considered highly speculative. See Risk
Factors beginning on page 10 of the accompanying
prospectus to read about factors you should consider, including
the risk of leverage, before investing in our common stock.
This prospectus supplement and the accompanying prospectus
contain important information about us that a prospective
investor should know before investing in our common stock.
Please read this prospectus supplement and the accompanying
prospectus before investing and keep them for future reference.
We file annual, quarterly and current reports, proxy statements
and other information with the Securities and Exchange
Commission. This information is available free of charge by
contacting us at 1300 Post Oak Boulevard, Suite 800,
Houston, Texas 77056 or by telephone at
(713) 350-6000
or on our website at www.mainstcapital.com. Information
contained on our website is not incorporated by reference into
this prospectus supplement or the accompanying prospectus, and
you should not consider that information to be part of this
prospectus supplement or the accompanying prospectus. The
Securities and Exchange Commission also maintains a website at
www.sec.gov that contains such information.
|
|
|
|
|
|
|
|
|
|
|
Per Share
|
|
|
Total
|
|
|
Public offering price
|
|
$
|
|
|
|
$
|
|
|
Underwriting discount (5.0%)
|
|
$
|
|
|
|
$
|
|
|
Proceeds, before expenses, to us(1)
|
|
$
|
|
|
|
$
|
|
|
|
|
|
(1)
|
|
We estimate that we will incur
approximately $200,000 in offering expenses in connection with
this offering.
|
The underwriters have the option to purchase up to an
additional shares
of common stock at the public offering price, less the
underwriting discount, within 30 days from the date of this
prospectus supplement solely to cover any over-allotments. If
the over-allotment option is exercised in full, the total public
offering price will be $ , and the
total underwriting discount (5.0%) will be
$ . The proceeds to us would be
$ , before deducting estimated
expenses payable by us of $200,000.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus supplement or the
accompanying prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
The underwriters expect to deliver the shares on or about
January , 2010.
Morgan
Keegan & Company, Inc.
BB&T
Capital Markets
A
Division of Scott & Stringfellow, LLC
|
|
|
Ladenburg
Thalmann & Co. Inc.
|
|
|
Madison
Williams and Company
|
|
The date of this prospectus supplement is
January , 2010
TABLE OF
CONTENTS
|
|
|
|
|
|
|
Page
|
|
PROSPECTUS SUPPLEMENT
|
|
|
|
S-1
|
|
|
|
|
S-5
|
|
|
|
|
S-7
|
|
|
|
|
S-8
|
|
|
|
|
S-9
|
|
|
|
|
S-11
|
|
|
|
|
S-13
|
|
|
|
|
S-16
|
|
|
|
|
S-16
|
|
|
|
|
S-16
|
|
|
|
|
S-17
|
|
|
|
|
S-36
|
|
|
|
|
S-72
|
|
|
|
|
S-102
|
|
|
PROSPECTUS
|
Prospectus Summary
|
|
|
1
|
|
Fees and Expenses
|
|
|
8
|
|
Risk Factors
|
|
|
10
|
|
Cautionary Statement Concerning Forward-Looking Statements
|
|
|
25
|
|
Formation Transactions
|
|
|
26
|
|
Use of Proceeds
|
|
|
27
|
|
Price Range of Common Stock and Distributions
|
|
|
27
|
|
Purchases of Equity Securities
|
|
|
29
|
|
Selected Financial Data
|
|
|
30
|
|
Managements Discussion and Analysis of Financial Condition
and Results of Operations
|
|
|
32
|
|
Senior Securities
|
|
|
48
|
|
Business
|
|
|
49
|
|
Portfolio Companies
|
|
|
57
|
|
Management
|
|
|
61
|
|
Certain Relationships and Transactions
|
|
|
77
|
|
Control Persons and Principal Stockholders
|
|
|
77
|
|
Sales of Common Stock Below Net Asset Value
|
|
|
79
|
|
Dividend Reinvestment Plan
|
|
|
85
|
|
Description of Capital Stock
|
|
|
86
|
|
Material U.S. Federal Income Tax Considerations
|
|
|
92
|
|
Regulation
|
|
|
98
|
|
Plan of Distribution
|
|
|
103
|
|
Custodian, Transfer and Distribution Paying Agent and Registrar
|
|
|
104
|
|
Brokerage Allocation and Other Practices
|
|
|
104
|
|
Legal Matters
|
|
|
104
|
|
Independent Registered Public Accounting Firm
|
|
|
104
|
|
Available Information
|
|
|
105
|
|
Privacy Notice
|
|
|
105
|
|
Index to Financial Statements
|
|
|
F-1
|
|
ABOUT THE
PROSPECTUS
This document is in two parts. The first part is this prospectus
supplement, which describes the terms of this offering of common
stock and also adds to and updates information contained in the
accompanying prospectus. The second part is the accompanying
prospectus, which gives more information. To the extent the
information contained in this prospectus supplement differs from
the information contained in the accompanying prospectus, the
information in this prospectus supplement shall control.
You should rely only on the information contained in this
prospectus supplement and the accompanying prospectus. Neither
we nor the underwriters have authorized any other person to
provide you with different information from that contained in
this prospectus supplement or the accompanying prospectus. If
anyone provides you with different or inconsistent information,
you should not rely on it. This prospectus supplement and the
accompanying prospectus do not constitute an offer to sell, or a
solicitation of an offer to buy, any shares of our common stock
by any person in any jurisdiction where it is unlawful for that
person to make such an offer or solicitation or to any person in
any jurisdiction to whom it is unlawful to make such an offer or
solicitation. The information contained in this prospectus
supplement and the accompanying prospectus is complete and
accurate only as of their respective dates, regardless of the
time of their delivery or sale of our common stock. This
prospectus supplement supersedes the accompanying prospectus to
the extent it contains information different from or additional
to the information in that prospectus.
Forward-Looking
Statements
Information contained in this prospectus supplement and the
accompanying prospectus may contain forward-looking statements,
which can be identified by the use of forward-looking
terminology such as may, will,
expect, intend, anticipate,
estimate, or continue or the negative
thereof or other variations thereon or comparable terminology.
The matters described in Risk Factors in the
accompanying prospectus and certain other factors noted
throughout this prospectus supplement and the accompanying
prospectus constitute cautionary statements identifying
important factors with respect to any such forward-looking
statements, including certain risks and uncertainties that could
cause actual results to differ materially from those in such
forward-looking statements.
PROSPECTUS
SUMMARY
This summary highlights some of the information in this
prospectus supplement and the accompanying prospectus. It is not
complete and may not contain all of the information that you may
want to consider. To understand the terms of the common stock
offered hereby, you should read the entire prospectus supplement
and the accompanying prospectus carefully. Together, these
documents describe the specific terms of the shares we are
offering. You should carefully read the sections titled
Unaudited Selected Pro Forma Combined Financial
Data, Selected Financial Data, Interim
Managements Discussion and Analysis of Financial Condition
and Results of Operations, Interim Financial
Statements, Audited and Interim Financial Statements
of Main Street Capital II, LP, Unaudited Pro Forma
Condensed Combined Financial Statements and the documents
identified in the section titled Available
Information in this prospectus supplement, as well as the
section titled Risk Factors in the accompanying
prospectus. Except as otherwise noted, all information in this
prospectus supplement and the accompanying prospectus assumes no
exercise of the underwriters over-allotment option.
Main Street Capital Corporation (MSCC) was formed
on March 9, 2007, for the purpose of (i) acquiring
100% of the equity interests of Main Street Mezzanine Fund, LP
(the Fund) and its general partner, Main Street
Mezzanine Management, LLC (the General Partner),
(ii) acquiring 100% of the equity interests of Main Street
Capital Partners, LLC (the Investment Manager),
(iii) raising capital in an initial public offering, which
was completed in October 2007 (the IPO), and
(iv) thereafter operating as an internally managed business
development company (BDC) under the Investment
Company Act of 1940 (the 1940 Act). The transactions
discussed above were consummated in October 2007 and are
collectively termed the Formation Transactions.
Unless otherwise noted or the context otherwise indicates, the
terms we, us, our and
Main Street refer to the Fund and the General
Partner prior to the IPO and to MSCC and its subsidiaries,
including the Fund and the General Partner, subsequent to the
IPO.
Main
Street
We are a principal investment firm focused on providing
customized debt and equity financing to lower middle-market
companies, which we generally define as companies with annual
revenues between $10 million and $100 million that
operate in diverse industries. We invest primarily in secured
debt instruments, equity investments, warrants and other
securities of lower middle-market companies based in the United
States. Our principal investment objective is to maximize our
portfolios total return by generating current income from
our debt investments and capital appreciation from our equity
and equity-related investments, including warrants, convertible
securities and other rights to acquire equity securities in a
portfolio company. Our core portfolio investments generally
range in size from $2 million to $15 million.
Our investments have generally been made through both MSCC and
the Fund. Since the IPO, MSCC and the Fund have co-invested in
substantially every investment we have made. MSCC and the Fund
share the same investment strategies and criteria in the lower
middle-market, although they are subject to different regulatory
regimes. An investors return in MSCC will depend, in part,
on the Funds investment returns as the Fund is a wholly
owned subsidiary of MSCC.
We seek to fill the current financing gap for lower
middle-market businesses, which have more limited access to
financing from commercial banks and other traditional sources.
Given the current credit environment, we believe the limited
access to financing for lower middle market companies is even
more pronounced. The underserved nature of the lower middle
market creates the opportunity for us to meet the financing
needs of lower middle-market companies while also negotiating
favorable transaction terms and equity participations. Our
ability to invest across a companys capital structure,
from senior secured loans to equity securities, allows us to
offer portfolio companies a comprehensive suite of financing
solutions, or one stop financing. Providing
customized, one stop financing solutions has become
even more relevant to our portfolio companies in the current
credit environment. We generally seek to partner directly with
entrepreneurs, management teams and business owners in making
our investments. Main Street believes that its core investment
strategy has a lower correlation to the broader debt and equity
markets.
S-1
As of September 30, 2009, we had debt and equity
investments in 36 core portfolio companies (which excludes
marketable securities, idle funds investments and our investment
in the affiliated Investment Manager) with an aggregate fair
value of $123 million and a weighted average effective
yield on our debt investments of approximately 14%. As of
September 30, 2009, approximately 81% of our total core
portfolio investments at cost were in the form of debt
investments and 92% of such debt investments at cost were
secured by first priority liens on the assets of our portfolio
companies. At September 30, 2009, we had equity ownership
in approximately 92% of our core portfolio companies and the
average fully diluted equity ownership in these portfolio
companies was approximately 24%.
Our principal executive offices are located at 1300 Post Oak
Boulevard, Suite 800, Houston, Texas 77056, and our
telephone number is
(713) 350-6000.
We maintain a website at
http://www.mainstcapital.com.
Information contained on our website is not incorporated by
reference into this prospectus supplement or the accompanying
prospectus, and you should not consider that information to be
part of this prospectus supplement or the accompanying
prospectus.
Recent
Developments
The
Exchange Offer
On January 7, 2010, MSCC consummated the transactions
related to its formal offer (the Exchange Offer)
commenced on September 23, 2009 to exchange shares of its
common stock for at least a majority of the limited partner
interests in Main Street Capital II, LP (MSC II).
The Exchange Offer was applicable to all MSC II limited partner
interests except for any limited partner interests owned by
affiliates of MSCC, including any limited partner interests
owned by officers or directors of MSCC. The Exchange Offer was
formally approved by the U.S. Small Business Administration
(the SBA) prior to closing. At the closing of the
Exchange Offer, approximately 88% of the total dollar value of
MSC II limited partner interests were validly exchanged for
1,239,695 shares of MSCC common stock (the Exchange
Shares). The Exchange Shares are subject to a
one-year
contractual
lock-up from
the Exchange Offer closing date. An approximately 12% minority
ownership in the total dollar value of the MSC II limited
partnership interests remains outstanding, including
approximately 5% owned by affiliates of MSCC. Pursuant to the
terms of the Exchange Offer, 100% of the membership interests in
the general partner of MSC II, Main Street Capital II GP,
LLC (MSC II GP), were also transferred to MSCC for
no consideration. The Exchange Offer and related transactions,
including the transfer of the MSC II GP interests, are
collectively termed the Exchange Offer Transactions.
MSC II is an investment fund that operates as a Small Business
Investment Company (SBIC) and commenced operations
in January 2006. MSC II has similar investment strategies to
MSCC and the Fund and is managed by the Investment Manager
pursuant to a separate investment advisory services agreement.
In addition, approximately 88% of the current MSC II portfolio
investments have represented co-investments with MSCC
and/or the
Fund.
As of September 30, 2009, the pro forma combined core
investment portfolio reflects debt and equity investments in 39
core portfolio companies with an aggregate fair value of
$192 million and a weighted average effective yield on its
debt investments of approximately 14%. Approximately 83% of the
pro forma combined core portfolio investments at cost were in
the form of debt investments and 92% of such debt investments at
cost were secured by first priority liens on the assets of the
portfolio companies as of September 30, 2009. At
September 30, 2009, the pro forma combined core investment
portfolio reflects equity ownership in approximately 92% of the
core portfolio companies and the average fully diluted equity
ownership in those portfolio companies was approximately 35%.
The weighted average yields were computed using the effective
interest rates for all debt investments at September 30,
2009, including amortization of deferred debt origination fees
and accretion of original issue discount but excluding any debt
investments on non-accrual status. For more information on MSC
II and MSC II GP and the Exchange Offer Transactions, see
Unaudited Selected Pro Forma Combined Financial
Data, Audited and Interim Financial Statements of
Main Street Capital II, LP and Unaudited Pro Forma
Condensed Combined Financial Statements in this prospectus
supplement.
MSC II currently has $70 million of SBIC debentures
outstanding, which are guaranteed by the SBA and carry an
average fixed interest rate of approximately 6%. SBIC debentures
have fixed interest rates that
S-2
approximate prevailing
10-year
Treasury Note rates when issued plus a market-determined spread.
SBIC debentures are non-recourse and have a maturity of ten
years from issuance. Until maturity, SBIC debentures are
interest only with interest payable semi-annually. The principal
amount of the MSC II SBIC debentures is not required to be paid
before maturity but may be pre-paid at any time. The first
principal maturity related to MSC IIs SBIC debentures does
not occur until 2016.
Consummation of the Exchange Offer Transactions provides Main
Street with access to additional long-term, low-cost leverage
capacity through the SBIC program. The American Recovery and
Reinvestment Act of 2009 enacted in February 2009 (the
Stimulus Bill) increased the maximum amount of
combined SBIC leverage (or SBIC leverage cap) to
$225 million for affiliated SBIC funds from the previous
SBIC leverage cap of approximately $137 million as adjusted
annually based on the Consumer Price Index. Since the increase
in the SBIC leverage cap applies to affiliated SBIC funds, Main
Street is required to allocate such increased borrowing capacity
between the Fund and MSC II. Subsequent to the Exchange Offer,
Main Street will have access to an incremental $90 million
in SBIC leverage capacity, subject to the required
capitalization of each fund, in addition to the $70 million
of existing MSC II SBIC leverage and the $65 million of
SBIC leverage at the Fund. At the closing of the Exchange Offer,
Main Street funded approximately $24 million in unfunded
limited partner commitments for the limited partner interests it
acquired in connection with the Exchange Offer in order to
comply with SBA regulatory requirements, which was funded by
Main Street in part with approximately $12 million drawn
down under its $30 million, three-year investment credit
facility. We currently project that consummation of the Exchange
Offer Transactions will be accretive to our calendar year 2010
distributable net investment income per share.
Other
During October 2009, we sold our portfolio investment in
Universal Scaffolding & Equipment, LLC
(Universal), which was on non-accrual status as of
September 30, 2009, for $0.8 million. We had recorded
unrealized depreciation as of September 30, 2009 on our
Universal investment equal to the loss we realized on the sale
in the fourth quarter of 2009.
During November 2009, we completed a $4.8 million portfolio
investment in Drilling Info, Inc. (Drilling Info).
Our investment in Drilling Info consists of a second lien,
secured debt investment with an equity warrant participation
representing an approximate 3% equity interest in Drilling Info.
Drilling Info is the premier information service provider for
the domestic upstream oil and gas industry, providing an
integrated land, production, and well information platform to a
base of over 10,000 users in the energy sector. Through a
subscription-based revenue model, Drilling Info provides
comprehensive and
up-to-date
data to its customers as well as a full complement of web-based
applications and tools. Consistent with our investment policies,
MSC II made a $3.2 million co-investment in Drilling Info
at the same time and on identical terms to our investment.
On December 8, 2009, we declared monthly dividends of
$0.125 per share for each of January, February and March 2010.
These monthly dividends equate to a total of $0.375 per share
for the first quarter of 2010 representing an annualized
dividend yield of approximately 9.3% based on the closing price
of our common stock on the Nasdaq Global Select Market on
January 11, 2010.
In December 2009, we, through the Fund, drew $10 million of
SBIC funding from the SBA. These borrowings will be included in
the March 2010 SBIC debenture pooling. Until pooled, these funds
will bear an interim annual interest rate of approximately 1.0%.
The pooling will result in debentures with a maturity date of
March 2020 and an interest rate to be determined at the time of
pooling based upon the then current
10-year
U.S. Treasury rate plus a fixed charge.
On December 31, 2009, the Employment Agreements dated
October 11, 2007 between MSCC and each of Todd A. Reppert,
President and Chief Financial Officer; Rodger A. Stout, Senior
Vice President-Finance & Administration, Chief
Compliance Officer and Treasurer; Curtis L. Hartman, Senior Vice
President; Dwayne L. Hyzak, Senior Vice President; and David L.
Magdol, Senior Vice President, as amended by amendments dated
July 1, 2009, expired on their stated termination date and
are no longer in effect. Although each of these executive
officers remains employed by Main Street in the same capacity,
Main Street has no current intention to extend or renew the
expired Employment Agreements.
S-3
The
Offering
|
|
|
Common stock offered by us |
|
shares |
|
Common stock outstanding prior to this offering |
|
12,082,142 shares (including 1,239,695 shares of
common stock issued in connection with the Exchange Offer and
approximately 93,000 shares issued under our dividend
reinvestment plan in the fourth quarter of 2009) |
|
Common stock to be outstanding after this offering |
|
shares |
|
Over-allotment option |
|
shares |
|
Use of proceeds |
|
The net proceeds from this offering (without exercise of the
over-allotment option and before deducting estimated expenses
payable by us of approximately $200,000) will be
$ . |
|
|
|
We intend to use approximately $12 million of the net
proceeds from this offering to repay outstanding debt borrowed
under our $30 million investment credit facility to fund
capital commitments to MSC II assumed by MSCC in the Exchange
Offer, and we intend to use the remaining net proceeds from this
offering to make investments in lower middle-market companies in
accordance with our investment objective and strategies
described in this prospectus supplement and the accompanying
prospectus, pay our operating expenses and other cash
obligations and for general corporate purposes. Pending such
uses, we may invest the net proceeds of this offering primarily
in marketable securities and idle funds investments, which may
include investments in secured intermediate term bank debt and
high quality debt investments, consistent with our business
development company (BDC) election and our election
to be taxed as a regulated investment company (RIC).
See Regulation Regulation as a Business
Development Company Idle Funds Investments in
the accompanying prospectus. |
|
Dividends and distributions |
|
Our dividends and other distributions, if any, will be
determined by our Board of Directors from time to time. |
|
|
|
Our ability to declare dividends depends on our earnings, our
overall financial condition (including our liquidity position),
maintenance of our RIC status and such other factors as our
Board of Directors may deem relevant from time to time. From our
IPO through the third quarter of 2008 we paid quarterly
dividends, but in the fourth quarter of 2008 we began paying,
and we intend to continue paying, monthly dividends to our
stockholders. |
|
|
|
In December 2009, we declared monthly dividends of $0.125 per
share for each of January, February and March 2010. These
monthly dividends equate to a total of $0.375 per share for the
first quarter of 2010 representing an annualized dividend yield
of approximately 9.3% based on the closing price of our common
stock on the Nasdaq Global Select Market on January 11,
2010. Because the record date for the January 2010 dividend is
prior to the date of this offering, investors who purchase
shares of our common stock in this offering will not be entitled
to receive such |
S-4
|
|
|
|
|
dividend. However, investors who purchase shares of common stock
in this offering will be entitled to receive the February
2010 monthly dividend and subsequent monthly dividends
provided that they continue to hold such shares. |
|
Taxation |
|
MSCC has elected to be treated for federal income tax purposes
as a RIC under Subchapter M of the Internal Revenue Code (the
Code). Accordingly, we generally will not pay
corporate-level federal income taxes on any net ordinary income
or capital gains that we distribute to our stockholders as
dividends. To maintain our RIC tax treatment, we must meet
specified
source-of-income
and asset diversification requirements and distribute annually
at least 90% of our net ordinary income and realized net
short-term capital gains in excess of realized net long-term
capital losses, if any. |
|
|
|
Depending on the level of taxable income earned in a tax year,
we may choose to carry forward taxable income in excess of
current year distributions into the next tax year and pay a 4%
excise tax on such income. Any such carryover taxable income
must be distributed through a dividend declared prior to filing
the final tax return related to the year which generated such
taxable income. See Material U.S. Federal Income Tax
Considerations in the accompanying prospectus. |
|
Risk factors |
|
See Risk Factors beginning on page 10 of the
accompanying prospectus for a discussion of risks you should
carefully consider before deciding to invest in shares of our
common stock. |
|
Nasdaq Global Select Market symbol |
|
MAIN |
FEES AND
EXPENSES
The following table is intended to assist you in understanding
the costs and expenses that an investor in this offering will
bear directly or indirectly and reflects our acquisition of a
majority interest in MSC II in connection with the Exchange
Offer. We caution you that some of the percentages indicated in
the table below are estimates and may vary. Except where the
context suggests otherwise, whenever this prospectus supplement
contains a reference to fees or expenses paid by
you, us or Main Street, or
that we will pay fees or expenses, stockholders will
indirectly bear such fees or expenses as investors in us.
|
|
|
|
|
Stockholder Transaction Expenses:
|
|
|
|
|
Sales load (as a percentage of offering price)
|
|
|
5.0
|
%(1)
|
Offering expenses (as a percentage of offering price)
|
|
|
|
%(2)
|
Dividend reinvestment plan expenses
|
|
|
|
(3)
|
|
|
|
|
|
Total stockholder transaction expenses (as a percentage of
offering price)
|
|
|
|
%
|
Annual Expenses (as a percentage of net assets
attributable to common stock):
|
|
|
|
|
Operating expenses
|
|
|
4.46
|
%(4)
|
Interest payments on borrowed funds
|
|
|
5.50
|
%(5)
|
|
|
|
|
|
Total annual expenses
|
|
|
9.96
|
%(6)
|
|
|
|
(1) |
|
Represents the underwriting discount with respect to the shares
sold by us in this offering. |
|
(2) |
|
The offering expenses of this offering are estimated to be
approximately $200,000. If the underwriters exercise their
over-allotment option in full, the offering expenses borne by us
(as a percentage of the offering price) will be
approximately %. |
|
(3) |
|
The expenses of administering our dividend reinvestment plan are
included in operating expenses. |
S-5
|
|
|
(4) |
|
Operating expenses represent the estimated annual expenses of
MSCC and its pro forma consolidated subsidiaries, including MSC
II. There is a 12% minority ownership interest in MSC II not
held by MSCC or its subsidiaries. The ratio of operating
expenses to net assets, net of the expenses related to the
minority interest in MSC II, would be 4.26%. |
|
(5) |
|
Interest payments on borrowed funds represent our estimated
annual interest payments on borrowed funds. |
|
(6) |
|
The total annual expenses are the sum of operating expenses and
interest payments on borrowed funds. In the future we may borrow
money to leverage our net assets and increase our total assets. |
Example
The following example demonstrates the projected dollar amount
of total cumulative expenses that would be incurred over various
periods with respect to a hypothetical investment in our common
stock. In calculating the following expense amounts, we have
assumed we would have no additional leverage and that our annual
operating expenses would remain at the levels set forth in the
table above, and that you would pay a sales load of 5.0% (the
underwriting discount to be paid by us with respect to common
stock sold by us in this offering).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Year
|
|
|
3 Years
|
|
|
5 Years
|
|
|
10 Years
|
|
|
You would pay the following expenses on a $1,000 investment,
assuming a 5.0% annual return
|
|
$
|
172
|
|
|
$
|
360
|
|
|
$
|
530
|
|
|
$
|
882
|
|
The example and the expenses in the table above should not be
considered a representation of our future expenses, and actual
expenses may be greater or less than those shown. While the
example assumes, as required by the SEC, a 5.0% annual return,
our performance will vary and may result in a return greater or
less than 5.0%. In addition, while the example assumes
reinvestment of all dividends at net asset value, participants
in our dividend reinvestment plan will receive a number of
shares of our common stock, determined by dividing the total
dollar amount of the dividend payable to a participant by
(i) the market price per share of our common stock at the
close of trading on the dividend payment date in the event that
we use newly issued shares to satisfy the share requirements of
the divided reinvestment plan or (ii) the average purchase
price of all shares of common stock purchased by the
administrator of the dividend reinvestment plan in the event
that shares are purchased in the open market to satisfy the
share requirements of the dividend reinvestment plan, which may
be at, above or below net asset value. See Dividend
Reinvestment Plan in the accompanying prospectus for
additional information regarding our dividend reinvestment plan.
S-6
USE OF
PROCEEDS
The net proceeds from the sale of
the shares
of common stock in this offering are
$ , and
$ if the underwriters
over-allotment option is exercised in full, after deducting the
underwriting discount and estimated offering expenses of
approximately $200,000 payable by us.
We intend to use approximately $12 million of the net
proceeds from this offering to repay outstanding debt borrowed
under our $30 million investment credit facility to fund
capital commitments to MSC II assumed by MSCC in connection with
the Exchange Offer in order to comply with SBA regulatory
requirements. We intend to use any remaining net proceeds from
this offering to make investments in lower middle-market
companies in accordance with our investment objective and
strategies described in this prospectus supplement and the
accompanying prospectus, pay our operating expenses and other
cash obligations and for general corporate purposes. Pending
such uses, we may invest the net proceeds of this offering
primarily in marketable securities and idle funds investments,
which may include investments in secured intermediate term bank
debt and high quality debt investments, consistent with our BDC
election and our election to be taxed as a RIC. See
Regulation Regulation as a Business
Development Company Idle Funds Investments in
the accompanying prospectus.
At January 12, 2010, we had approximately $12 million
outstanding under our $30 million investment credit
facility. Our investment credit facility matures on
October 24, 2011, unless extended, and bears interest, at
our election, on a per annum basis equal to (i) the
applicable LIBOR rate plus 2.75% or (ii) the applicable
base rate plus 0.75%. Amounts repaid under our $30 million
investment credit facility will remain available for future
borrowings.
Affiliates of BB&T Capital Markets, an underwriter in this
offering, act as lenders
and/or
agents under our $30 million investment credit facility. As
described above, we intend to use net proceeds of this offering
to repay the outstanding indebtedness under this credit
facility, and those affiliates therefore may receive a portion
of the proceeds from this offering through the repayment of
those borrowings. See Underwriting
Affiliations below.
S-7
CAPITALIZATION
The following table sets forth our capitalization:
|
|
|
|
|
on an actual basis as of September 30, 2009; and
|
|
|
|
on an as-adjusted basis giving effect to the Exchange Offer
Transactions; and
|
|
|
|
|
|
on an as-adjusted further basis giving effect to the Exchange
Offer Transactions and the sale
of shares
of our common stock in this offering at the public offering
price of $ per share, less
estimated underwriting discounts and offering expenses payable
by us.
|
This table should be read in conjunction with Interim
Managements Discussion and Analysis of Financial Condition
and Results of Operations, Interim Financial
Statements, Audited and Interim Financial Statements
of Main Street Capital II, LP and Unaudited Pro
Forma Condensed Combined Financial Statements in this
prospectus supplement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2009
|
|
|
|
|
|
|
As-adjusted for
|
|
|
|
|
|
|
|
|
|
the Exchange Offer
|
|
|
As-adjusted further
|
|
|
|
Actual
|
|
|
Transactions(1)
|
|
|
for this Offering
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
8,216,699
|
|
|
$
|
36,287,052
|
|
|
$
|
|
|
Marketable securities and idle funds investments (cost:
$39,498,257, $35,641,964 and $ ,
actual, as adjusted for the Exchange Offer Transactions and as
adjusted further for this offering, respectively)
|
|
|
39,912,232
|
|
|
|
36,183,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents and marketable securities and
idle funds investments
|
|
$
|
48,128,931
|
|
|
$
|
72,470,695
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBIC debentures
|
|
$
|
55,000,000
|
|
|
$
|
108,540,753
|
|
|
$
|
108,540,753
|
|
Bank Line of Credit
|
|
|
|
|
|
|
12,000,000
|
|
|
|
|
|
Stockholders equity (net asset value):
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value per share
(150,000,000 shares authorized; 10,749,640, 11,989,335
and issued
and outstanding, actual, as adjusted for the Exchange Offer
Transactions and as adjusted further for this offering,
respectively)
|
|
|
107,496
|
|
|
|
119,893
|
|
|
|
|
|
Additional paid-in capital
|
|
|
121,886,302
|
|
|
|
127,849,062
|
|
|
|
|
|
Undistributed net realized income
|
|
|
830,071
|
|
|
|
4,545,567
|
|
|
|
|
|
Net unrealized appreciation from investments, net of income taxes
|
|
|
6,238,956
|
|
|
|
6,238,956
|
|
|
|
|
|
Noncontrolling interest
|
|
|
|
|
|
|
3,259,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity (net asset value)
|
|
|
129,062,825
|
|
|
|
142,012,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
184,062,825
|
|
|
$
|
262,553,294
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See the Unaudited Pro Forma Condensed Combined Balance
Sheet as of September 30, 2009 and the corresponding
notes in Note C of the Notes to Pro Forma Condensed
Combined Financial Statements in the Unaudited Pro
Forma Condensed Combined Financial Statements for detail
regarding the adjustments for the Exchange Offer Transactions. |
S-8
UNAUDITED
SELECTED PRO FORMA COMBINED FINANCIAL DATA
The following tables set forth unaudited pro forma condensed
combined financial data that illustrate the effect of the
Exchange Offer, and related transactions, on Main Streets
financial position and results of operations based upon the
companies respective historical financial positions and
results of operations under the acquisition method of accounting
with Main Street treated as the acquirer. Under this method of
accounting, the assets and liabilities of MSC II will be
recorded by Main Street at their estimated fair values as of the
date of the Exchange Offer. The unaudited selected pro forma
combined financial data of Main Street and MSC II has been
derived from the unaudited pro forma condensed combined balance
sheet as of September 30, 2009 and the unaudited pro forma
condensed combined income statements for the year ended
December 31, 2008 and the nine months ended
September 30, 2009. For more information regarding the pro
forma financial data, please refer to the unaudited pro forma
condensed combined financial statements and the related
footnotes included in this prospectus supplement. The pro forma
condensed combined balance sheet as of September 30, 2009
assumes the Exchange Offer and related transactions took place
on that date. The pro forma condensed combined statements of
income for the year ended December 31, 2008 and for the
nine months ended September 30, 2009 assume the Exchange
Offer and related transactions took place on January 1,
2008.
The unaudited selected pro forma combined financial data should
be read together with the historical consolidated financial
statements of Main Street, the historical combined financial
statements of MSC II and the general partner of MSC II and the
unaudited pro forma condensed combined financial statements, and
the related footnotes to those financial statements, included in
this prospectus. The unaudited selected pro forma combined
financial data is presented for illustrative purposes only and
is not necessarily indicative of what the operating results or
financial position of Main Street or MSC II would have been had
the Exchange Offer and related transactions been completed at
the beginning of the periods or on the dates indicated, nor are
they necessarily indicative of any future operating results or
financial position.
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Nine Months Ended
|
|
|
|
December 31, 2008
|
|
|
September 30, 2009
|
|
|
|
(Unaudited)
|
|
|
Pro Forma Condensed Combined Income Statement:
|
|
|
|
|
|
|
|
|
Interest, fee and dividend income
|
|
$
|
24,929,973
|
|
|
$
|
16,867,921
|
|
Interest from marketable securities, idle funds and other
|
|
|
1,708,030
|
|
|
|
1,649,231
|
|
|
|
|
|
|
|
|
|
|
Total investment income
|
|
|
26,638,003
|
|
|
|
18,517,152
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
(7,292,222
|
)
|
|
|
(5,856,907
|
)
|
General and administrative
|
|
|
(1,862,282
|
)
|
|
|
(1,180,147
|
)
|
Expenses reimbursed to affiliated Investment Manager
|
|
|
(4,332,035
|
)
|
|
|
(2,800,075
|
)
|
Share-based compensation
|
|
|
(511,452
|
)
|
|
|
(767,218
|
)
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
(13,997,991
|
)
|
|
|
(10,604,347
|
)
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
12,640,012
|
|
|
|
7,912,805
|
|
Net realized gain (loss)
|
|
|
(576,476
|
)
|
|
|
1,953,714
|
|
|
|
|
|
|
|
|
|
|
Net realized income
|
|
|
12,063,536
|
|
|
|
9,866,519
|
|
Net unrealized depreciation investment portfolio
|
|
|
(6,894,209
|
)
|
|
|
(4,970,328
|
)
|
Net unrealized depreciation investment in affiliated
Investment Manager
|
|
|
(113,925
|
)
|
|
|
380,492
|
|
Income tax (provision) benefit
|
|
|
3,590,833
|
|
|
|
129,685
|
|
Bargain purchase gain
|
|
|
3,715,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in net assets resulting from operations
|
|
|
12,361,731
|
|
|
|
5,406,368
|
|
Noncontrolling interest
|
|
|
360,378
|
|
|
|
657,903
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in net assets resulting from operations,
net of noncontrolling interest
|
|
$
|
12,722,109
|
|
|
$
|
6,064,271
|
|
|
|
|
|
|
|
|
|
|
Net investment income per share, net of noncontrolling interest
|
|
$
|
1.20
|
|
|
$
|
0.70
|
|
|
|
|
|
|
|
|
|
|
Net realized income per share, net of noncontrolling interest
|
|
$
|
1.16
|
|
|
$
|
0.88
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in net assets resulting from operations
per share, net of noncontrolling interest
|
|
$
|
1.23
|
|
|
$
|
0.55
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
10,335,599
|
|
|
|
11,027,921
|
|
|
|
|
|
|
|
|
|
|
S-9
|
|
|
|
|
|
|
September 30, 2009
|
|
|
|
(Unaudited)
|
|
Pro Forma Condensed Combined Balance Sheet:
|
|
|
|
|
Assets
|
|
|
|
|
Investments core portfolio
|
|
$
|
191,576,461
|
|
Investment in affiliated Investment Manager
|
|
|
2,381,567
|
|
Marketable securities and idle funds investments
|
|
|
36,183,643
|
|
Cash and cash equivalents
|
|
|
36,287,052
|
|
Other assets
|
|
|
4,397,224
|
|
|
|
|
|
|
Total assets
|
|
$
|
270,825,947
|
|
|
|
|
|
|
Liabilities and Net Asset Value
|
|
|
|
|
SBIC debentures
|
|
$
|
108,540,753
|
|
Bank line of credit
|
|
|
12,000,000
|
|
Other liabilities
|
|
|
8,272,653
|
|
|
|
|
|
|
Total liabilities
|
|
|
128,813,406
|
|
Net asset value (before noncontrolling interest)
|
|
|
138,753,478
|
|
Noncontrolling interest
|
|
|
3,259,063
|
|
|
|
|
|
|
Total net asset value
|
|
|
142,012,541
|
|
|
|
|
|
|
Total liabilities and net asset value
|
|
$
|
270,825,947
|
|
|
|
|
|
|
Net Asset Value Per Share (before noncontrolling interest)
|
|
$
|
11.57
|
|
|
|
|
|
|
S-10
SELECTED
FINANCIAL DATA
The selected financial data below reflects the combined
operations of the Fund and the General Partner for the years
ended December 31, 2004, 2005 and 2006 and the consolidated
operations of Main Street and its subsidiaries for the years
ended December 31, 2007 and 2008 and the nine months ended
September 30, 2008 and 2009. The selected financial data
does not reflect Main Streets acquisition of a majority
interest in MSC II in connection with the Exchange Offer given
that it occurred after the periods presented. See
Unaudited Selected Pro Forma Combined Financial
Data, and Unaudited Pro Forma Condensed Combined
Financial Statements in this prospectus supplement for an
illustration of the effect of the Exchange Offer and related
transactions on Main Streets financial position and
results of operations. The selected financial data at
December 31, 2005, 2006, 2007 and 2008, and for the years
ended December 31, 2004, 2005, 2006, 2007 and 2008, have
been derived from combined/consolidated financial statements
that have been audited by Grant Thornton LLP, an independent
registered public accounting firm. The selected financial data
at December 31, 2004 has been derived from unaudited
combined financial statements. The selected financial data for
the nine months ended September 30, 2008 and 2009, and as
of September 30, 2008 and 2009, has been derived from
unaudited financial data but, in the opinion of management,
reflects all adjustments (consisting only of normal recurring
adjustments) that are necessary to present fairly the results
for such interim periods. Interim results as of and for the nine
months ended September 30, 2009 are not necessarily
indicative of the results that may be expected for the year
ending December 31, 2009. You should read this selected
financial data in conjunction with our Managements
Discussion and Analysis of Financial Condition and Results of
Operations, Senior Securities and the
financial statements and related notes thereto in the
accompanying prospectus and Interim Managements
Discussion and Analysis of Financial Condition and Results of
Operations and Interim Financial Statements in
this prospectus supplement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(Dollars in thousands)
|
|
|
Statement of operations data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest, fee and dividend income
|
|
$
|
4,452
|
|
|
$
|
7,338
|
|
|
$
|
9,013
|
|
|
$
|
11,312
|
|
|
$
|
15,967
|
|
|
$
|
11,803
|
|
|
$
|
10,380
|
|
Interest from idle funds and other
|
|
|
9
|
|
|
|
222
|
|
|
|
749
|
|
|
|
1,163
|
|
|
|
1,328
|
|
|
|
859
|
|
|
|
1,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment income
|
|
|
4,461
|
|
|
|
7,560
|
|
|
|
9,762
|
|
|
|
12,475
|
|
|
|
17,295
|
|
|
|
12,662
|
|
|
|
11,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
(869
|
)
|
|
|
(2,064
|
)
|
|
|
(2,717
|
)
|
|
|
(3,246
|
)
|
|
|
(3,778
|
)
|
|
|
(2,734
|
)
|
|
|
(2,831
|
)
|
General and administrative
|
|
|
(184
|
)
|
|
|
(197
|
)
|
|
|
(198
|
)
|
|
|
(512
|
)
|
|
|
(1,684
|
)
|
|
|
(1,271
|
)
|
|
|
(1,062
|
)
|
Expenses reimbursed to Investment Manager
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,007
|
)
|
|
|
(720
|
)
|
|
|
(306
|
)
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(511
|
)
|
|
|
(316
|
)
|
|
|
(767
|
)
|
Management fees to affiliate
|
|
|
(1,916
|
)
|
|
|
(1,929
|
)
|
|
|
(1,942
|
)
|
|
|
(1,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional costs related to initial public offering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(695
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
(2,969
|
)
|
|
|
(4,190
|
)
|
|
|
(4,857
|
)
|
|
|
(5,953
|
)
|
|
|
(6,980
|
)
|
|
|
(5,041
|
)
|
|
|
(4,966
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
1,492
|
|
|
|
3,370
|
|
|
|
4,905
|
|
|
|
6,522
|
|
|
|
10,315
|
|
|
|
7,621
|
|
|
|
6,728
|
|
Total net realized gain from investments
|
|
|
1,171
|
|
|
|
1,488
|
|
|
|
2,430
|
|
|
|
4,692
|
|
|
|
1,398
|
|
|
|
5,030
|
|
|
|
1,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized income
|
|
|
2,663
|
|
|
|
4,858
|
|
|
|
7,335
|
|
|
|
11,214
|
|
|
|
11,713
|
|
|
|
12,651
|
|
|
|
8,207
|
|
Total net change in unrealized appreciation (depreciation) from
investments
|
|
|
1,764
|
|
|
|
3,032
|
|
|
|
8,488
|
|
|
|
(5,406
|
)
|
|
|
(3,961
|
)
|
|
|
(4,584
|
)
|
|
|
1,312
|
|
Income tax benefit (provision)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,263
|
)
|
|
|
3,182
|
|
|
|
2,297
|
|
|
|
789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in net assets resulting from operations
|
|
$
|
4,427
|
|
|
$
|
7,890
|
|
|
$
|
15,823
|
|
|
$
|
2,545
|
|
|
$
|
10,934
|
|
|
$
|
10,364
|
|
|
$
|
10,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income per share basic and diluted(1)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
0.76
|
|
|
$
|
1.13
|
|
|
$
|
0.84
|
|
|
$
|
0.69
|
|
Net realized income per share basic and diluted(1)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
1.31
|
|
|
$
|
1.29
|
|
|
$
|
1.40
|
|
|
$
|
0.84
|
|
Net increase (decrease) in net assets resulting from operations
per share basic and diluted(1)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
0.30
|
|
|
$
|
1.20
|
|
|
$
|
1.15
|
|
|
$
|
1.05
|
|
Weighted average shares outstanding basic and
diluted(1)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
8,587,701
|
|
|
|
9,095,904
|
|
|
|
9,050,010
|
|
|
|
9,788,226
|
|
|
|
|
(1) |
|
In the first quarter of 2009, Main Street adopted Accounting
Standards Codification
260-10-45-61A,
Earnings Per Share. The December 31, 2008 data
reflects changes pursuant to the adoption of this standard. |
S-11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
As of September 30,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(Dollars in thousands)
|
|
|
Balance sheet data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total portfolio investments at fair value
|
|
$
|
37,972
|
|
|
$
|
51,192
|
|
|
$
|
73,711
|
|
|
$
|
105,650
|
|
|
$
|
127,007
|
|
|
$
|
123,278
|
|
|
$
|
139,799
|
|
Marketable securities and idle funds investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,063
|
|
|
|
4,390
|
|
|
|
|
|
|
|
39,912
|
|
Cash and cash equivalents
|
|
|
796
|
|
|
|
26,261
|
|
|
|
13,769
|
|
|
|
41,889
|
|
|
|
35,375
|
|
|
|
46,843
|
|
|
|
8,217
|
|
Deferred tax asset
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,121
|
|
|
|
|
|
|
|
1,186
|
|
Other assets
|
|
|
262
|
|
|
|
439
|
|
|
|
630
|
|
|
|
1,576
|
|
|
|
1,101
|
|
|
|
794
|
|
|
|
1,095
|
|
Deferred financing costs, net of accumulated amortization
|
|
|
984
|
|
|
|
1,442
|
|
|
|
1,333
|
|
|
|
1,670
|
|
|
|
1,635
|
|
|
|
1,472
|
|
|
|
1,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
40,014
|
|
|
$
|
79,334
|
|
|
$
|
89,443
|
|
|
$
|
174,848
|
|
|
$
|
170,629
|
|
|
$
|
172,387
|
|
|
$
|
191,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and net assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBIC debentures
|
|
$
|
22,000
|
|
|
$
|
45,100
|
|
|
$
|
45,100
|
|
|
$
|
55,000
|
|
|
$
|
55,000
|
|
|
$
|
55,000
|
|
|
$
|
55,000
|
|
Marketable securities settlement liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,773
|
|
Deferred tax liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,026
|
|
|
|
|
|
|
|
238
|
|
|
|
|
|
Interest payable
|
|
|
354
|
|
|
|
771
|
|
|
|
855
|
|
|
|
1,063
|
|
|
|
1,108
|
|
|
|
300
|
|
|
|
290
|
|
Accounts payable and other liabilities
|
|
|
422
|
|
|
|
194
|
|
|
|
216
|
|
|
|
610
|
|
|
|
2,165
|
|
|
|
1,431
|
|
|
|
1,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
22,776
|
|
|
|
46,065
|
|
|
|
46,171
|
|
|
|
59,699
|
|
|
|
58,273
|
|
|
|
56,969
|
|
|
|
62,567
|
|
Total net assets
|
|
|
17,238
|
|
|
|
33,269
|
|
|
|
43,272
|
|
|
|
115,149
|
|
|
|
112,356
|
|
|
|
115,418
|
|
|
|
129,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and net assets
|
|
$
|
40,014
|
|
|
$
|
79,334
|
|
|
$
|
89,443
|
|
|
$
|
174,848
|
|
|
$
|
170,629
|
|
|
$
|
172,387
|
|
|
$
|
191,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average effective yield on debt investments(1)
|
|
|
15.3
|
%
|
|
|
15.3
|
%
|
|
|
15.0
|
%
|
|
|
14.3
|
%
|
|
|
14.0
|
%
|
|
|
13.7
|
%
|
|
|
14.0
|
%
|
Number of portfolio companies(2)
|
|
|
14
|
|
|
|
19
|
|
|
|
24
|
|
|
|
27
|
|
|
|
31
|
|
|
|
29
|
|
|
|
36
|
|
Expense ratios (as percentage of average net assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses(3)
|
|
|
13.7
|
%
|
|
|
9.0
|
%
|
|
|
5.5
|
%
|
|
|
4.8
|
%
|
|
|
2.8
|
%
|
|
|
2.0
|
%
|
|
|
1.8
|
%
|
Interest expense
|
|
|
5.7
|
%
|
|
|
8.8
|
%
|
|
|
7.0
|
%
|
|
|
5.7
|
%
|
|
|
3.3
|
%
|
|
|
2.4
|
%
|
|
|
2.4
|
%
|
|
|
|
(1) |
|
Weighted-average effective yield is calculated based on our debt
investments at the end of each period and includes amortization
of deferred debt origination fees and accretion of original
issue discount, but excludes debt investments on non-accrual
status. |
|
(2) |
|
Excludes the investment in affiliated Investment Manager, as
referenced in Formation Transactions and in the
notes to the financial statements elsewhere in this prospectus
supplement. |
|
(3) |
|
The ratio for the year ended December 31, 2007 reflects the
impact of professional costs related to the Offering. These
costs were 25.7% of operating expenses for the year. |
S-12
UNDERWRITING
Under the terms and subject to the conditions contained in an
underwriting agreement
dated ,
2010, the underwriters named below, for whom Morgan
Keegan & Company, Inc. is acting as representative,
have severally agreed to purchase, and we have agreed to sell to
them, the number of shares of common stock indicated below:
|
|
|
|
|
Underwriter
|
|
Number of Shares
|
|
|
Morgan Keegan & Company, Inc.
|
|
|
|
|
BB&T Capital Markets, a division of Scott &
Stringfellow, LLC
|
|
|
|
|
Ladenburg Thalmann & Co. Inc.
|
|
|
|
|
Janney Montgomery Scott LLC
|
|
|
|
|
Madison Williams and Company LLC
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
The underwriting agreement provides that the obligations of the
underwriters to pay for and accept delivery of the shares of
common stock offered hereby are subject to the approval of
certain legal matters by their counsel and to certain other
conditions. The underwriters are severally obligated to take and
pay for all shares of common stock offered hereby (other than
those covered by the underwriters over-allotment option
described below) if any such shares are taken. We have agreed to
indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act.
Our common stock is listed on the Nasdaq Global Select Market
under the symbol MAIN.
Over-Allotment
Option
We have granted to the underwriters an option, exercisable for
30 days from the date of this prospectus supplement, to
purchase up to an aggregate
of additional
shares of common stock at the public offering price set forth on
the cover page hereof, less the underwriting discount. The
underwriters may exercise this option solely for the purpose of
covering over-allotments, if any, made in connection with the
offering of the shares of common stock offered hereby. To the
extent such option is exercised, each underwriter will become
obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares of
common stock as the number set forth next to such
underwriters name in the preceding table bears to the
total number of shares set forth next to the names of all
underwriters in the preceding table.
Lock-Up
Agreements
We, and certain of our executive officers and directors, have
agreed, subject to certain exceptions, not to issue, sell, offer
to sell, contract or agree to sell, hypothecate, pledge,
transfer, grant any option to purchase, establish an open put
equivalent position or otherwise dispose of or agree to dispose
of directly or indirectly, any shares of our common stock, or
any securities convertible into or exercisable or exchangeable
for any shares of our common stock or any right to acquire
shares of our common stock, for 60 days from the date of
this prospectus supplement, subject to extension upon material
announcements or earnings releases. The representative, at any
time and without notice, may release all or any portion of the
common stock subject to the foregoing
lock-up
agreements.
Underwriting
Discounts
The underwriters initially propose to offer the shares directly
to the public at the public offering price set forth on the
cover page of this prospectus supplement and to certain dealers
at a price that represents a concession not in excess of
$ per share below the public
offering price. Any underwriters may allow, and such dealers may
re-allow, a concession not in excess of
$ per share to other underwriters
or to certain dealers. After the initial public offering of the
shares, the offering price and other selling terms may be
changed by the underwriters.
S-13
The following table provides information regarding the per share
and total underwriting discount that we are to pay to the
underwriters. These amounts are shown assuming both no exercise
and full exercise of the underwriters option to purchase
up
to
additional shares from us.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total without
|
|
Total with Full
|
|
|
|
|
Exercise of
|
|
Exercise of
|
|
|
Per Share
|
|
Over-allotment
|
|
Over-allotment
|
|
Underwriting discount payable by us on shares sold to the public
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
We will pay all expenses incident to the offering and sale of
shares of our common stock by us in this offering. We estimate
that the total expenses of the offering, excluding the
underwriting discount will be approximately $200,000.
A prospectus supplement in electronic format may be made
available on the web sites maintained by one or more of the
underwriters, or selling group members, if any, participating in
this offering. The representative may agree to allocate a number
of shares to underwriters and selling group members for the sale
to their online brokerage account holders. Internet
distributions will be allocated by the underwriters and selling
group members that will make Internet distributions on the same
basis as other allocations. The representative may agree to
allocate a number of shares to underwriters for sale to their
online brokerage account holders.
Price
Stabilization, Short Positions and Penalty Bids
In connection with this offering, the underwriters may purchase
and sell shares of our common stock in the open market. These
transactions may include over-allotment, syndicate covering
transactions and stabilizing transactions. An over-allotment
involves syndicate sales of shares in excess of the number of
shares to be purchased by the underwriters in the offering,
which creates a syndicate short position. Syndicate covering
transactions involve purchases of shares in the open market
after the distribution has been completed in order to cover
syndicate short positions.
Stabilizing transactions consist of some bids or purchases of
shares of our common stock made for the purpose of preventing or
slowing a decline in the market price of the shares while the
offering is in progress.
In addition, the underwriters may impose penalty bids, under
which they may reclaim the selling concession from a syndicate
member when the shares of our common stock originally sold by
that syndicate member are purchased in a stabilizing transaction
or syndicate covering transaction to cover syndicate short
positions.
Similar to other purchase transactions, these activities may
have the effect of raising or maintaining the market price of
the common stock or preventing or slowing a decline in the
market price of the common stock. As a result, the price of the
common stock may be higher than the price that might otherwise
exist in the open market. Except for the sale of shares of our
common stock in this offering, the underwriters may carry out
these transactions on the Nasdaq Global Select Market, in the
over-the-counter
market or otherwise.
Neither the underwriters nor we make any representation or
prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of the
shares. In addition, neither the underwriters nor we make any
representation that the underwriters will engage in these
transactions or that these transactions, once commenced, will
not be discontinued without notice.
Passive
Market Making Pursuant to Regulation M
In connection with this transaction, the underwriters may engage
in passive market making transactions in our common stock on the
Nasdaq Global Select Market, prior to the pricing and completion
of this offering. Passive market making is permitted by SEC
Regulation M and consists of displaying bids on the Nasdaq
Global Select Market no higher than the bid prices of
independent market makers and making purchases at prices no
higher than these independent bids and effected in response to
order flow. Net purchases by a passive market maker on each day
are limited to a specified percentage of the passive market
makers average daily trading volume in our common stock
during a specified period and must be discontinued when such
S-14
limit is reached. Passive market making may cause the price of
our common stock to be higher than the price that otherwise
would exist in the open market in the absence of such
transactions.
Affiliations
An affiliate of BB&T Capital Markets, an underwriter in
this offering, is a lender and administrative agent under our
$30 million investment credit facility. As described above
under Use of Proceeds, we intend to use net proceeds
of this offering to repay the outstanding indebtedness under
this credit facility and those affiliates therefore may receive
a portion of the proceeds from this offering through the
repayment of those borrowings.
The underwriters
and/or their
affiliates from time to time provide and may in the future
provide investment banking, commercial banking and financial
advisory services to us, for which they have received and may
receive customary compensation.
In addition, the underwriters
and/or their
affiliates may from time to time refer investment banking
clients to us as potential portfolio investments. If we invest
in those clients, we may utilize net proceeds from this offering
to fund such investments, and the referring underwriter or its
affiliate may receive placement fees from its client in
connection with such financing, which placement fees may be paid
out of the amount funded by us.
The addresses of the underwriters are: Morgan Keegan &
Company, Inc., 50 N. Front St., 19th Floor,
Memphis, Tennessee 38103; BB&T Capital Markets,
909 E. Main Street, Richmond, Virginia 23219;
Ladenburg Thalmann & Co. Inc., 520 Madison Avenue,
9th Floor, New York, New York 10022; Janney Montgomery
Scott LLC, 1801 Market Street, Philadelphia, Pennsylvania 19103;
and Madison Williams and Company LLC, 527 Madison Ave, New York,
New York 10022.
S-15
LEGAL
MATTERS
Certain legal matters regarding the shares of common stock
offered hereby will be passed upon for us by Sutherland
Asbill & Brennan LLP, Washington D.C., and certain
legal matters in connection with this offering will be passed
upon for the underwriters by Bass, Berry & Sims PLC,
Memphis, Tennessee.
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
The consolidated financial statements, the effectiveness of
internal control over financial reporting and
Schedule 12-14
of Main Street Capital Corporation as of December 31, 2008
and December 31, 2007 and for the two years then ended, the
combined financial statements of Main Street Mezzanine Fund, LP
and Main Street Mezzanine Management, LLC as of
December 31, 2006 and for the year then ended, the
Senior Securities table, and the combined financial
statements of Main Street Capital II, LP and Main Street
Capital II GP, LLC as of December 31, 2008 and
December 31, 2007 and for the two years then ended included
in this prospectus supplement and the accompanying prospectus
have been so included in reliance upon the reports of Grant
Thornton LLP, independent registered public accountants, upon
the authority of said firm as experts in giving said reports.
AVAILABLE
INFORMATION
We have filed with the SEC a registration statement on
Form N-2,
together with all amendments and related exhibits, under the
Securities Act, with respect to our shares of common stock
offered by this prospectus supplement. The registration
statement contains additional information about us and our
shares of common stock being offered by this prospectus
supplement.
We file with or submit to the SEC annual, quarterly and current
reports, proxy statements and other information meeting the
informational requirements of the Securities Exchange Act of
1934. You may inspect and copy these reports, proxy statements
and other information, as well as the registration statement and
related exhibits and schedules, at the Public Reference Room of
the SEC at 100 F Street, N.E., Washington, D.C.
20549. You may obtain information on the operation of the Public
Reference Room by calling the SEC at
1-800-SEC-0330.
The SEC maintains an Internet site that contains reports, proxy
and information statements and other information filed
electronically by us with the SEC, which are available on the
SECs website at www.sec.gov . Copies of these
reports, proxy and information statements and other information
may be obtained, after paying a duplicating fee, by electronic
request at the following
e-mail
address: publicinfo@sec.gov, or by writing the SECs
Public Reference Section, 100 F Street, N.E.,
Washington, D.C. 20549.
S-16
INTERIM
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with
Interim Financial Statements in this prospectus
supplement.
Statements we make in the following discussion which express
a belief, expectation or intention, as well as those that are
not historical fact, are forward-looking statements that are
subject to risks, uncertainties and assumptions. Our actual
results, performance or achievements, or industry results, could
differ materially from those we express in the following
discussion as a result of a variety of factors, including the
risks and uncertainties we have referred to under the headings
Cautionary Statement Concerning Forward-Looking
Statements and Risk Factors in the
accompanying prospectus.
ORGANIZATION
Main Street Capital Corporation (MSCC) was formed on
March 9, 2007 for the purpose of (i) acquiring 100% of
the equity interests of Main Street Mezzanine Fund, LP (the
Fund) and its general partner, Main Street Mezzanine
Management, LLC (the General Partner),
(ii) acquiring 100% of the equity interests of Main Street
Capital Partners, LLC (the Investment Manager),
(iii) raising capital in an initial public offering, which
was completed in October 2007 (the IPO), and
(iv) thereafter operating as an internally managed business
development company (BDC) under the Investment
Company Act of 1940, as amended (the 1940 Act). The
transactions discussed above were consummated in October 2007
and are collectively termed the Formation
Transactions. Immediately following the Formation
Transactions, Main Street Equity Interests, Inc.
(MSEI) was formed as a wholly owned consolidated
subsidiary of MSCC. MSEI has elected for tax purposes to be
treated as a taxable entity and is taxed at normal corporate tax
rates based on its taxable income. Unless otherwise noted or the
context otherwise indicates, the terms we,
us, our and Main Street
refer to MSCC and its subsidiaries, including the Fund, the
General Partner and MSEI.
OVERVIEW
We are a principal investment firm focused on providing
customized debt and equity financing to lower middle-market
companies, which we generally define as companies with annual
revenues between $10 million and $100 million that
operate in diverse industries. We invest primarily in secured
debt instruments, equity investments, warrants and other
securities of lower middle-market companies based in the United
States. Our principal investment objective is to maximize our
portfolios total return by generating current income from
our debt investments and capital appreciation from our equity
and equity-related investments, including warrants, convertible
securities and other rights to acquire equity securities in a
portfolio company. Our core portfolio investments generally
range in size from $2 million to $15 million.
Our investments are generally made through both MSCC and the
Fund. Since the IPO, MSCC and the Fund have co-invested in
substantially every investment we have made. MSCC and the Fund
share the same investment strategies and criteria in the lower
middle-market, although they are subject to different regulatory
regimes. An investors return in MSCC will depend, in part,
on the Funds investment returns as the Fund is a wholly
owned subsidiary of MSCC.
We seek to fill the current financing gap for lower
middle-market businesses, which, historically, have had limited
access to financing from commercial banks and other traditional
sources. Given the current credit environment, we believe the
limited access to financing for lower middle market companies is
even more pronounced. The underserved nature of the lower middle
market creates the opportunity for us to meet the financing
needs of lower middle-market companies while also negotiating
favorable transaction terms and equity participations. Our
ability to invest across a companys capital structure,
from senior secured loans to equity securities, allows us to
offer portfolio companies a comprehensive suite of financing
solutions, or one stop financing. Providing
customized, one stop financing solutions has become
even more relevant to our portfolio companies in the current
credit environment. We generally seek to partner directly with
entrepreneurs, management teams and business owners in making
our investments. Main Street believes that its core investment
strategy has a lower correlation to the broader debt and equity
markets.
S-17
The level of new portfolio investment activity will fluctuate
from period to period based upon our view of the current
economic fundamentals, our ability to identify new investment
opportunities that meet our investment criteria, and our ability
to consummate identified opportunities. The level of new
investment activity, and associated interest and fee income,
will directly impact future investment income. In addition, the
level of dividends paid by portfolio companies and the portion
of our portfolio debt investments on non-accrual status will
directly impact future investment income. While we intend to
grow our portfolio and our investment income over the long-term,
our growth and our operating results may be more limited during
depressed economic periods. However, we intend to appropriately
manage our cost structure and liquidity position based on
applicable economic conditions and our investment outlook. The
level of realized gains or losses and unrealized appreciation or
depreciation will also fluctuate depending upon portfolio
activity and the performance of our individual portfolio
companies. The changes in realized gains and losses and
unrealized appreciation or depreciation could have a material
impact on our operating results.
During 2008, we paid approximately $1.425 per share in
dividends. Through the first nine months of 2009, we paid
monthly dividends totaling $1.125 per share. In September 2009,
we declared monthly dividends for the fourth quarter of 2009
totaling $0.375 per share. Including the dividends declared for
the fourth quarter of 2009, we will have paid approximately
$3.26 per share in cumulative dividends since our October 2007
initial public offering. For tax purposes, the monthly dividend
paid in January 2009 was applied against the 2008 taxable income
distribution requirements since it was declared and accrued
prior to December 31, 2008. Excluding the impact for the
tax treatment of the January 2009 dividend, we estimate that we
generated undistributed taxable income (or spillover
income) of approximately $4 million, or $0.43 per
share, during 2008 that was carried forward toward distributions
paid in 2009. For the 2009 calendar year, we will have paid
dividends of $1.50 per share representing an increase of 5.3%
over the total dividends per share paid during calendar year
2008.
During June 2009, Main Street completed a follow-on public stock
offering consisting of the sale of 1,437,500 shares of
common stock, including the underwriters exercise of the
over-allotment option, resulting in total net proceeds of
approximately $16.2 million, after deducting
underwriters commissions and offering costs.
At September 30, 2009, we had $48.1 million in cash
and cash equivalents, marketable securities, and idle funds
investments. During October 2008, we closed a $30 million
multi-year investment line of credit. Due to our existing cash,
cash equivalents, marketable securities and idle fund
investments, and available leverage, we expect to have
sufficient cash resources to support our investment and
operational activities for the remainder of 2009 and through
most of calendar year 2010. However, this projection will be
impacted by, among other things, the pace of new and follow-on
investments, debt repayments and investment redemptions, the
level of cash flow from operations and cash flow from realized
gains, and the level of dividends we pay in cash.
The American Recovery and Reinvestment Act of 2009 enacted in
February 2009 (the Stimulus Bill) contains several
provisions applicable to SBIC funds, including the Fund, our
wholly owned subsidiary. One of the key SBIC-related provisions
included in the Stimulus Bill increased the maximum amount of
combined SBIC leverage (or SBIC leverage cap) to
$225 million for affiliated SBIC funds. The prior maximum
amount of SBIC leverage available to affiliated SBIC funds was
approximately $137 million, as adjusted annually based upon
changes in the Consumer Price Index. Due to the increase in the
maximum amount of SBIC leverage available to affiliated SBIC
funds, we now have access to incremental SBIC leverage to
support our future investment activities. Since the increase in
the SBIC leverage cap applies to affiliated SBIC funds, we will
allocate such increased borrowing capacity between the Fund and
Main Street Capital II, LP (MSC II), an
independently owned SBIC that is managed by the Investment
Manager and therefore deemed to be affiliated for SBIC
regulatory purposes. For more discussion of MSC II, please refer
below to the section titled MSC II Exchange Offer.
Exclusive of the SBIC leverage available to MSC II, we estimate
that we have access to at least $65 million of the
additional SBIC leverage from the Stimulus Bill subject to the
required capitalization of the Fund.
S-18
In our view, the SBIC leverage, including the increased
capacity, remains a strategic advantage due to its long-term,
flexible structure and a low fixed cost. The SBIC leverage also
provides proper matching of duration and cost compared with our
core portfolio investments. The weighted average duration of our
core portfolio debt investments is approximately 3.1 years
compared to a weighted average duration of 5.7 years for
our SBIC leverage. Approximately 87% of core portfolio debt
investments bear interest at fixed rates which is also
appropriately matched by the long-term, low cost fixed rates
available through our SBIC leverage. In addition, we believe the
embedded value of our SBIC leverage would be significant if we
adopted the fair value option provisions of the Financial
Accounting Standards Board (FASB) Accounting
Standards Codification (Codification or
ASC) 825, Financial Instruments, relating to
accounting for debt obligations at their fair value.
MSC II
Exchange Offer
On September 23, 2009, we commenced a formal offer to
exchange (the Offer) shares of our common stock for
at least a majority of the limited partner interests in MSC II.
MSC II is an independently owned investment fund that operates
as an SBIC and commenced operations in January 2006. MSC II has
access to long-term, low-cost leverage through its participation
in the SBIC program and is managed by the Investment Manager.
The Offer is only being made for MSC II limited partner
interests that are not owned by affiliates of Main Street,
including any officers or directors of Main Street. Pursuant to
the terms of the Offer, it is contemplated that the general
partner of MSC II will also be assumed by us for no
consideration. The Offer is subject to various conditions and
approvals, including but not limited to approval by the
U.S. Small Business Administration (SBA). The
initial offer period expired on October 23, 2009 and
approximately 78% of the total dollar value of the MSC II
limited partner interests had made an election to participate in
the Offer during the initial offer period. Since the required
approval from SBA had not been received at the end of the
initial offer period and certain other conditions had not been
satisfied, the Offer was extended for an additional
30-day
period to end on November 23, 2009. The maximum number of
shares of Main Street common stock that may be issued pursuant
to the Offer would total approximately 1.3 million shares.
Owning a majority of MSC II will provide us with access to
additional long-term leverage capacity through the SBIC program,
and we currently project that consummation of the Offer will be
accretive to our calendar year 2010 distributable net investment
income per share.
CRITICAL
ACCOUNTING POLICIES
Basis
of Presentation
Our consolidated financial statements are prepared in accordance
with U.S. generally accepted accounting principles
(U.S. GAAP). For the three and nine months
ended September 30, 2009 and 2008, the consolidated
financial statements of Main Street include the accounts of
MSCC, the Fund, MSEI and the General Partner. The Investment
Manager is accounted for as a portfolio investment.
Marketable securities and idle funds investments are
classified as financial instruments and are reported separately
on our Consolidated Balance Sheets and Consolidated Schedule of
Investments due to the nature of such investments. To allow for
more relevant disclosure of our core investment
portfolio, core portfolio investments, as used
herein, refers to all of our portfolio investments excluding the
Investment Manager and Marketable securities and idle
funds investments. Main Streets results of
operations for the three and nine months ended
September 30, 2009 and 2008, and cash flows for the nine
months ended September 30, 2009 and 2008, and financial
positions as of September 30, 2009 and December 31,
2008 are presented on a consolidated basis. The effects of all
intercompany transactions between Main Street and its
subsidiaries have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements of
Main Street are presented in conformity with U.S. GAAP for
interim financial information and pursuant to the requirements
of Article 10 of
Regulation S-X.
Accordingly, certain disclosures accompanying annual financial
statements prepared in accordance with U.S. GAAP are
omitted. In the opinion of our management, the unaudited
consolidated financial results included herein contain all
adjustments, consisting solely of normal recurring accruals
considered necessary for the fair presentation of financial
statements for the interim periods included herein.
S-19
The results of operations for the three and nine months ended
September 30, 2009 are not necessarily indicative of the
operating results to be expected for the full year. Also, the
unaudited financial statements and notes should be read in
conjunction with our audited financial statements and notes
thereto for the year ended December 31, 2008. Financial
statements prepared on a U.S. GAAP basis require management
to make estimates and assumptions that affect the amounts and
disclosures reported in the financial statements and
accompanying notes. Such estimates and assumptions could change
in the future as more information becomes known, which could
impact the amounts reported and disclosed herein.
Under the investment company rules and regulations pursuant to
Article 6 of
Regulation S-X
and the Audit and Accounting Guide for Investment Companies
issued by the American Institute of Certified Public Accountants
(the AICPA Guide), we are precluded from
consolidating portfolio company investments, including those in
which we have a controlling interest, unless the portfolio
company is another investment company. An exception to this
general principle in the AICPA Guide occurs if we own a
controlled operating company that provides all or substantially
all of its services directly to us, or to an investment company
of ours. None of the investments made by us qualify for this
exception. Therefore, our portfolio investments are carried on
the balance sheet at fair value, as discussed further in
Note B to our consolidated financial statements, with any
adjustments to fair value recognized as Net Change in
Unrealized Appreciation (Depreciation) from Investments on
our Statement of Operations until the investment is disposed of,
resulting in any gain or loss on exit being recognized as a
Net Realized Gain (Loss) from Investments.
Portfolio
Investment Valuation
The most significant estimate inherent in the preparation of our
consolidated financial statements is the valuation of our
portfolio investments and the related amounts of unrealized
appreciation and depreciation. As of September 30,
2009 and December 31, 2008, approximately 73% and 74%,
respectively, of our total assets represented investments in
portfolio companies valued at fair value (including the
investment in the Investment Manager). We are required to report
our investments at fair value. We adopted the provisions of ASC
820, Fair Value Measurements and Disclosures in the first
quarter of 2008. ASC 820 defines fair value, establishes a
framework for measuring fair value, establishes a fair value
hierarchy based on the quality of inputs used to measure fair
value, and enhances disclosure requirements for fair value
measurements.
Our core business plan calls for us to invest primarily in
illiquid securities issued by private companies. These core
portfolio investments may be subject to restrictions on resale
and will generally have no established trading market. As a
result, we determine in good faith the fair value of our
portfolio investments pursuant to a valuation policy in
accordance with ASC 820 and a valuation process approved by our
Board of Directors and in accordance with the 1940 Act. We
review external events, including private mergers, sales and
acquisitions involving comparable companies, and include these
events in the valuation process. Our valuation policy and
process are intended to provide a consistent basis for
determining the fair value of the portfolio.
For valuation purposes, control investments are composed of
equity and debt securities for which we have a controlling
interest in the portfolio company or have the ability to
nominate a majority of the portfolio companys board of
directors. Market quotations are generally not readily available
for our control investments. As a result, we determine the fair
value of control investments using a combination of market and
income approaches. Under the market approach, we will typically
use the enterprise value methodology to determine the fair value
of these investments. The enterprise value is the fair value at
which an enterprise could be sold in a transaction between two
willing parties, other than through a forced or liquidation
sale. Typically, private companies are bought and sold based on
multiples of earnings before interest, taxes, depreciation and
amortization, or EBITDA, cash flows, net income, revenues, or in
limited cases, book value. There is no single methodology for
estimating enterprise value. For any one portfolio company,
enterprise value is generally described as a range of values
from which a single estimate of enterprise value is derived. In
estimating the enterprise value of a portfolio company, we
analyze various factors, including the portfolio companys
historical and projected financial results. We allocate the
enterprise value to investments in order of the legal priority
of the investments. We will also use the income approach to
determine the fair value of these securities, based on
projections of the discounted future free cash flows that the
portfolio company or the debt security will likely generate. The
valuation approaches for our control investments estimate the
value of the
S-20
investment if we were to sell, or exit, the investment, assuming
the highest and best use of the investment by market
participants. In addition, these valuation approaches consider
the value associated with our ability to control the capital
structure of the portfolio company, as well as the timing of a
potential exit.
For valuation purposes, non-control investments are composed of
debt and equity securities for which we do not have a
controlling interest in the portfolio company, or the ability to
nominate a majority of the portfolio companys board of
directors. Market quotations for our non-control investments are
generally not readily available. For our non-control
investments, we use a combination of the market and income
approaches to value our equity investments and the income
approach to value our debt instruments. For non-control debt
investments, we determine the fair value primarily using a yield
approach that analyzes the discounted cash flows of interest and
principal for the debt security, as set forth in the associated
loan agreements, as well as the financial position and credit
risk of each of these portfolio investments. Our estimate of the
expected repayment date of a debt security is generally the
legal maturity date of the instrument, as we generally intend to
hold our loans to maturity. The yield analysis considers changes
in leverage levels, credit quality, portfolio company
performance and other factors. We will use the value determined
by the yield analysis as the fair value for that security;
however, because of our general intent to hold our loans to
maturity, the fair value will not exceed the face amount of the
debt security. A change in the assumptions that we use to
estimate the fair value of our debt securities using the yield
analysis could have a material impact on the determination of
fair value. If there is deterioration in credit quality or a
debt security is in workout status, we may consider other
factors in determining the fair value of a debt security,
including the value attributable to the debt security from the
enterprise value of the portfolio company or the proceeds that
would be received in a liquidation analysis.
Due to the inherent uncertainty in the valuation process, our
estimate of fair value may differ materially from the values
that would have been used had a ready market for the securities
existed. In addition, changes in the market environment,
portfolio company performance and other events that may occur
over the lives of the investments may cause the gains or losses
ultimately realized on these investments to be materially
different than the valuations currently assigned. We determine
the fair value of each individual investment and record changes
in fair value as unrealized appreciation or depreciation.
Revenue
Recognition
Interest
and Dividend Income
We record interest and dividend income on the accrual basis to
the extent amounts are expected to be collected. Dividend income
is recorded as dividends are declared or at the point an
obligation exists for the portfolio company to make a
distribution. In accordance with our valuation policy, we
evaluate accrued interest and dividend income periodically for
collectability. When a loan or debt security becomes
90 days or more past due, and if we otherwise do not expect
the debtor to be able to service all of its debt or other
obligations, we will generally place the loan or debt security
on non-accrual status and cease recognizing interest income on
that loan or debt security until the borrower has demonstrated
the ability and intent to pay contractual amounts due. If a loan
or debt securitys status significantly improves regarding
ability to service the debt or other obligations, or if a loan
or debt security is fully impaired, sold or written off, we will
remove it from non-accrual status.
Fee
Income
We may periodically provide services, including structuring and
advisory services, to our portfolio companies. For services that
are separately identifiable and evidence exists to substantiate
fair value, income is recognized as earned, which is generally
when the investment or other applicable transaction closes. Fees
received in connection with debt financing transactions for
services that do not meet these criteria are treated as debt
origination fees and are accreted into interest income over the
life of the financing.
S-21
Payment-in-Kind
(PIK) Interest
While not significant to our total core debt investment
portfolio, we currently hold several loans in our core portfolio
that contain PIK interest provisions. The PIK interest, computed
at the contractual rate specified in each loan agreement, is
added to the principal balance of the loan and recorded as
interest income. To maintain regulated investment company
(RIC) tax treatment (as discussed below), this
non-cash source of income will need to be paid out to
stockholders in the form of distributions, even though we may
not have collected the PIK interest in cash. We will stop
accruing PIK interest and write off any accrued and uncollected
interest when it is determined that PIK interest is no longer
collectible.
Share-Based
Compensation
We account for our share-based compensation plans using the fair
value method, as prescribed by ASC 718,
Compensation Stock Compensation. Accordingly,
for restricted stock awards, we measured the grant date fair
value based upon the market price of our common stock on the
date of the grant and will amortize this fair value to
share-based compensation expense over the requisite service
period or vesting term.
Income
Taxes
MSCC has elected and intends to qualify for the tax treatment
applicable to a RIC under Subchapter M of the Internal Revenue
Code of 1986, as amended (the Code), and, among
other things, intends to make the required distributions to our
stockholders as specified therein. As a RIC, we generally will
not pay corporate-level federal income taxes on any net ordinary
income or capital gains that we distribute to our stockholders
as dividends. Depending on the level of taxable income earned in
a tax year, we may choose to carry forward taxable income in
excess of current year distributions into the next tax year and
pay a 4% excise tax on such income. Any such carryover taxable
income must be distributed through a dividend declared prior to
filing the final tax return related to the year which generated
such taxable income.
MSCCs wholly owned subsidiary, MSEI, is a taxable entity
which holds certain of our core portfolio investments. MSEI is
consolidated for U.S. GAAP reporting purposes, and the core
portfolio investments held by MSEI are included in our
consolidated financial statements. The principal purpose of MSEI
is to permit us to hold equity investments in portfolio
companies which are pass through entities for tax
purposes in order to comply with the source income
requirements contained in the RIC tax provisions. MSEI is not
consolidated with Main Street for income tax purposes and may
generate income tax expense or income tax benefit as a result of
MSEIs ownership of certain core portfolio investments.
This income tax expense or benefit, if any, is reflected in our
consolidated statement of operations.
MSEI uses the liability method in accounting for income taxes.
Deferred tax assets and liabilities are recorded for temporary
differences between the tax basis of assets and liabilities and
their reported amounts in the financial statements, using
statutory tax rates in effect for the year in which the
temporary differences are expected to reverse. A valuation
allowance is provided against deferred tax assets when it is
more likely than not that some portion or all of the deferred
tax asset will not be realized.
CORE
PORTFOLIO COMPOSITION
Core portfolio investments principally consist of secured debt,
equity warrants and direct equity investments in privately held
companies. The core debt investments are secured by either a
first or second lien on the assets of the portfolio company,
generally bear interest at fixed rates, and generally mature
between five and seven years from the original investment. In
most portfolio companies, we also receive nominally priced
equity warrants
and/or make
direct equity investments, usually in connection with a debt
investment.
The Investment Manager is a wholly owned subsidiary of MSCC.
However, the Investment Manager is accounted for as a portfolio
investment of Main Street, since it conducts a significant
portion of its investment management activities outside of MSCC
and its subsidiaries. To allow for more relevant disclosure of
our core investment portfolio, our investment in the Investment
Manager has been excluded from the tables and amounts set forth
below.
S-22
Summaries of the composition of our core investment portfolio at
cost and fair value as a percentage of total core portfolio
investments are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
Cost:
|
|
2009
|
|
|
2008
|
|
|
First lien debt
|
|
|
73.8
|
%
|
|
|
76.2
|
%
|
Equity
|
|
|
13.7
|
%
|
|
|
11.0
|
%
|
Second lien debt
|
|
|
6.8
|
%
|
|
|
7.4
|
%
|
Equity warrants
|
|
|
5.7
|
%
|
|
|
5.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
Fair Value:
|
|
2009
|
|
|
2008
|
|
|
First lien debt
|
|
|
61.0
|
%
|
|
|
67.0
|
%
|
Equity
|
|
|
19.8
|
%
|
|
|
15.7
|
%
|
Equity warrants
|
|
|
12.7
|
%
|
|
|
10.2
|
%
|
Second lien debt
|
|
|
6.5
|
%
|
|
|
7.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
The following table shows the core portfolio composition by
geographic region of the United States at cost and fair value as
a percentage of total core portfolio investments. The geographic
composition is determined by the location of the corporate
headquarters of the portfolio company:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
Cost:
|
|
2009
|
|
|
2008
|
|
|
Southwest
|
|
|
49.7
|
%
|
|
|
50.2
|
%
|
West
|
|
|
30.9
|
%
|
|
|
36.3
|
%
|
Southeast
|
|
|
7.7
|
%
|
|
|
5.1
|
%
|
Midwest
|
|
|
6.8
|
%
|
|
|
4.7
|
%
|
Northeast
|
|
|
4.9
|
%
|
|
|
3.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
Fair Value:
|
|
2009
|
|
|
2008
|
|
|
Southwest
|
|
|
56.4
|
%
|
|
|
56.0
|
%
|
West
|
|
|
27.5
|
%
|
|
|
31.1
|
%
|
Midwest
|
|
|
6.5
|
%
|
|
|
5.1
|
%
|
Northeast
|
|
|
5.5
|
%
|
|
|
3.7
|
%
|
Southeast
|
|
|
4.1
|
%
|
|
|
4.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
S-23
Main Streets core portfolio investments are generally in
lower middle-market companies conducting business in a variety
of industries. Set forth below are tables showing the
composition of Main Streets core portfolio by industry at
cost and fair value as of September 30, 2009 and
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
Cost:
|
|
2009
|
|
|
2008
|
|
|
Industrial equipment
|
|
|
10.7
|
%
|
|
|
12.0
|
%
|
Professional services
|
|
|
9.9
|
%
|
|
|
4.1
|
%
|
Precast concrete manufacturing
|
|
|
9.6
|
%
|
|
|
11.3
|
%
|
Custom wood products
|
|
|
8.6
|
%
|
|
|
9.3
|
%
|
Electronics manufacturing
|
|
|
6.8
|
%
|
|
|
7.6
|
%
|
Retail
|
|
|
6.7
|
%
|
|
|
6.5
|
%
|
Transportation/Logistics
|
|
|
6.5
|
%
|
|
|
6.6
|
%
|
Agricultural services
|
|
|
6.3
|
%
|
|
|
8.3
|
%
|
Restaurant
|
|
|
5.5
|
%
|
|
|
6.1
|
%
|
Industrial services
|
|
|
4.7
|
%
|
|
|
0.5
|
%
|
Mining and minerals
|
|
|
4.3
|
%
|
|
|
4.8
|
%
|
Manufacturing
|
|
|
4.0
|
%
|
|
|
4.7
|
%
|
Health care products
|
|
|
3.9
|
%
|
|
|
5.8
|
%
|
Health care services
|
|
|
3.8
|
%
|
|
|
4.2
|
%
|
Metal fabrication
|
|
|
2.5
|
%
|
|
|
3.4
|
%
|
Equipment rental
|
|
|
2.2
|
%
|
|
|
2.1
|
%
|
Governmental services
|
|
|
1.6
|
%
|
|
|
0.0
|
%
|
Infrastructure products
|
|
|
1.5
|
%
|
|
|
1.7
|
%
|
Information services
|
|
|
0.8
|
%
|
|
|
0.9
|
%
|
Distribution
|
|
|
0.1
|
%
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
S-24
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
Fair Value:
|
|
2009
|
|
|
2008
|
|
|
Precast concrete manufacturing
|
|
|
11.8
|
%
|
|
|
13.7
|
%
|
Professional services
|
|
|
10.3
|
%
|
|
|
5.4
|
%
|
Health care services
|
|
|
8.1
|
%
|
|
|
6.1
|
%
|
Agricultural services
|
|
|
8.0
|
%
|
|
|
8.1
|
%
|
Industrial services
|
|
|
6.8
|
%
|
|
|
2.8
|
%
|
Transportation/Logistics
|
|
|
6.7
|
%
|
|
|
6.5
|
%
|
Retail
|
|
|
6.6
|
%
|
|
|
7.0
|
%
|
Electronics manufacturing
|
|
|
6.4
|
%
|
|
|
7.7
|
%
|
Restaurant
|
|
|
6.3
|
%
|
|
|
6.7
|
%
|
Industrial equipment
|
|
|
6.1
|
%
|
|
|
10.2
|
%
|
Custom wood products
|
|
|
5.3
|
%
|
|
|
6.8
|
%
|
Metal fabrication
|
|
|
4.7
|
%
|
|
|
4.3
|
%
|
Health care products
|
|
|
3.9
|
%
|
|
|
5.8
|
%
|
Manufacturing
|
|
|
3.8
|
%
|
|
|
5.1
|
%
|
Equipment rental
|
|
|
2.2
|
%
|
|
|
2.0
|
%
|
Governmental services
|
|
|
1.8
|
%
|
|
|
0.0
|
%
|
Information services
|
|
|
0.6
|
%
|
|
|
0.9
|
%
|
Infrastructure products
|
|
|
0.3
|
%
|
|
|
0.5
|
%
|
Distribution
|
|
|
0.3
|
%
|
|
|
0.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
Our core portfolio investments carry a number of risks
including, but not limited to: (1) investing in lower
middle-market companies which may have a limited operating
history and financial resources; (2) holding investments
that are not publicly traded and which may be subject to legal
and other restrictions on resale; and (3) other risks
common to investing in below investment grade debt and equity
investments in private, lower middle-market companies.
CORE
PORTFOLIO ASSET QUALITY
We utilize an internally developed investment rating system to
rate the performance of each core portfolio company. Investment
Rating 1 represents a portfolio company that is performing in a
manner which significantly exceeds expectations and projections.
Investment Rating 2 represents a portfolio company that, in
general, is performing above expectations. Investment Rating 3
represents a portfolio company that is generally performing in
accordance with expectations. Investment Rating 4 represents a
portfolio company that is underperforming expectations.
Investments with such a rating require increased Main Street
monitoring and scrutiny. Investment Rating 5 represents a
portfolio company that is significantly underperforming.
Investments with such a rating require heightened levels of Main
Street monitoring and scrutiny and involve the recognition of
significant unrealized depreciation on such investment. All new
core portfolio investments receive an initial 3 rating.
S-25
The following table shows the distribution of our core
investments on our 1 to 5 investment rating scale at fair value
as of September 30, 2009 and December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009
|
|
|
December 31, 2008
|
|
Investment
|
|
Investments at
|
|
|
Percentage of
|
|
|
Investments at
|
|
|
Percentage of
|
|
Rating
|
|
Fair Value
|
|
|
Total Portfolio
|
|
|
Fair Value
|
|
|
Total Portfolio
|
|
|
|
(Dollars in thousands)
|
|
|
1
|
|
$
|
14,060
|
|
|
|
11.4
|
%
|
|
$
|
27,523
|
|
|
|
24.9
|
%
|
2
|
|
|
56,420
|
|
|
|
45.7
|
%
|
|
|
23,150
|
|
|
|
21.0
|
%
|
3
|
|
|
42,009
|
|
|
|
34.0
|
%
|
|
|
53,123
|
|
|
|
48.1
|
%
|
4
|
|
|
9,753
|
|
|
|
7.9
|
%
|
|
|
6,035
|
|
|
|
5.5
|
%
|
5
|
|
|
1,217
|
|
|
|
1.0
|
%
|
|
|
500
|
|
|
|
0.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
123,459
|
|
|
|
100.0
|
%
|
|
$
|
110,331
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based upon our investment rating system, the weighted average
rating of our core portfolio as of September 30, 2009 and
December 31, 2008, was approximately 2.4. As of
September 30, 2009, we had three investments on non-accrual
status. These investments comprised approximately 2.6% of the
core investment portfolio at fair value as of September 30,
2009. As of December 31, 2008, we had one investment on
non-accrual status. This investment comprised approximately 0.5%
of the core investment portfolio at fair value as of
December 31, 2008.
In the event that the United States economy remains depressed,
it is likely that the financial results of small- to mid-sized
companies, like those in which we invest, could experience
deterioration or limited growth from current levels, which could
ultimately lead to difficulty in meeting their debt service
requirements and an increase in defaults. In addition, the end
markets for certain of our portfolio companies products
and services have experienced negative economic trends. We are
seeing reduced operating results at several portfolio companies
due to the general economic difficulties. We expect the trend of
reduced operating results to continue into early 2010.
Consequently, we can provide no assurance that the performance
of certain of our portfolio companies will not be negatively
impacted by these economic or other conditions, which could also
have a negative impact on our future results.
Discussion
and Analysis of Results of Operations
Comparison
of three months ended September 30, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Net Change
|
|
|
|
2009
|
|
|
2008
|
|
|
Amount
|
|
|
%
|
|
|
|
(Unaudited)
|
|
|
|
(Dollars in millions)
|
|
|
Total investment income
|
|
$
|
4.5
|
|
|
$
|
4.4
|
|
|
$
|
0.1
|
|
|
|
1
|
%
|
Total expenses
|
|
|
(1.9
|
)
|
|
|
(1.9
|
)
|
|
|
|
|
|
|
(3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
2.6
|
|
|
|
2.5
|
|
|
|
0.1
|
|
|
|
4
|
%
|
Total net realized gain from investments
|
|
|
0.2
|
|
|
|
4.3
|
|
|
|
(4.1
|
)
|
|
|
(96
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized income
|
|
|
2.8
|
|
|
|
6.8
|
|
|
|
(4.0
|
)
|
|
|
(59
|
)%
|
Net change in unrealized appreciation (depreciation) from
investments
|
|
|
2.9
|
|
|
|
(4.1
|
)
|
|
|
7.0
|
|
|
|
NM
|
|
Income tax benefit (provision)
|
|
|
1.3
|
|
|
|
|
|
|
|
1.3
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting from operations
|
|
$
|
7.0
|
|
|
$
|
2.7
|
|
|
$
|
4.3
|
|
|
|
163
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Net Change
|
|
|
|
2009
|
|
|
2008
|
|
|
Amount
|
|
|
%
|
|
|
|
(Unaudited)
|
|
|
|
(Dollars in millions)
|
|
|
Net investment income
|
|
$
|
2.6
|
|
|
$
|
2.5
|
|
|
$
|
0.1
|
|
|
|
4
|
%
|
Share-based compensation expense
|
|
|
0.4
|
|
|
|
0.3
|
|
|
|
0.1
|
|
|
|
19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributable net investment income(a)
|
|
|
3.0
|
|
|
|
2.8
|
|
|
|
0.2
|
|
|
|
5
|
%
|
Total net realized gain from investments
|
|
|
0.2
|
|
|
|
4.3
|
|
|
|
(4.1
|
)
|
|
|
(96
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributable net realized income(a)
|
|
$
|
3.2
|
|
|
$
|
7.1
|
|
|
$
|
(3.9
|
)
|
|
|
(56
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributable net investment income per share Basic
and diluted
|
|
$
|
0.28
|
|
|
$
|
0.31
|
|
|
$
|
(0.03
|
)
|
|
|
(9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributable net realized income per share Basic
and diluted
|
|
$
|
0.30
|
|
|
$
|
0.78
|
|
|
$
|
(0.48
|
)
|
|
|
(62
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Distributable net investment income and distributable net
realized income are net investment income and net realized
income, respectively, as determined in accordance with U.S.
generally accepted accounting principles, or GAAP, excluding the
impact of share-based compensation expense which is non-cash in
nature. Main Street believes presenting distributable net
investment income and distributable net realized income are
useful and appropriate supplemental disclosures for analyzing
its financial performance since share-based compensation does
not require settlement in cash. However, distributable net
investment income and distributable net realized income are
non-GAAP measures and should not be considered as a replacement
to net investment income, net realized income, and other
earnings measures presented in accordance with GAAP. Instead,
distributable net investment income and distributable net
realized income should be reviewed only in connection with such
GAAP measures in analyzing Main Streets financial
performance. A reconciliation of net investment income and net
realized income in accordance with GAAP to distributable net
investment income and distributable net realized income is
presented in the table above. |
Investment
Income
For the three months ended September 30, 2009, total
investment income was $4.5 million, representing a 1%
increase compared with the corresponding period of 2008. Total
investment income for the third quarter of 2009 included higher
interest income from marketable securities and idle funds
investments, primarily offset by reduced levels of fee income.
During the third quarter of 2009, Main Street received a
$0.9 million special dividend on a portfolio company
investment compared to approximately $1.0 million of
dividend income in the corresponding period of 2008 on several
portfolio company equity investments.
Expenses
For the three months ended September 30, 2009, expenses
totaled $1.9 million, a 3% decrease over total expenses for
the three months ended September 30, 2008. The decrease in
total expenses was primarily attributable to a $0.1 million
decrease in general, administrative and other overhead expenses,
offset by a $0.1 million increase in share-based
compensation expense related to non-cash amortization for
restricted share grants. The reduction in general,
administrative and overhead costs primarily related to
(i) external consulting fees received by the affiliated
Investment Manager during the third quarter of 2009 and
(ii) reduced costs for certain legal and administrative
activities based upon developing internal resources to perform
such activities.
Distributable
Net Investment Income
Distributable net investment income for the three months ended
September 30, 2009 was $3.0 million, or a 5% increase,
compared to distributable net investment income of
$2.8 million during the three months ended
September 30, 2008. The increase in distributable net
investment income was primarily attributable to a higher
S-27
level of investment income and lower general, administrative and
overhead expenses. Distributable net investment income on a per
share basis decreased to $0.28 per share in the third quarter of
2009 compared to $0.31 per share in the corresponding period of
2008 due to a greater number of average shares outstanding in
the current period.
Net
Investment Income
Net investment income for the three months ended
September 30, 2009 was $2.6 million, or a 4% increase
compared to net investment income for the corresponding period
of 2008. The increase in net investment income was principally
attributable to a higher level of total investment income and
lower general, administrative and overhead expenses as discussed
above.
Distributable
Net Realized Income
For the three months ended September 30, 2009,
distributable net realized income was $3.2 million, or a
56% decrease over the distributable net realized income of
$7.1 million during the three months ended
September 30, 2008. This comparable period decrease was
primarily attributable to a higher level of third quarter
2008 net realized gain related to the exit of several
portfolio company investments. The net realized gain for the
three months ended September 30, 2009 principally related
to $0.2 million in realized gain from marketable securities
investments.
Net
Realized Income
The lower net realized gain during the three months ended
September 30, 2009 resulted in a $4.0 million, or 59%,
decrease in net realized income for the third quarter of 2009
compared with the corresponding period in 2008.
Net
Increase in Net Assets from Operations
During the three months ended September 30, 2009, we
recorded a net change in unrealized appreciation in the amount
of $2.9 million, or a $7.0 million increase, compared
to the $4.1 million net change in unrealized depreciation
for the three months ended September 30, 2008. The
$2.9 million net change in unrealized appreciation for the
three months ended September 30, 2009 was principally
attributable to (i) unrealized appreciation on eleven
investments in portfolio companies totaling $5.6 million,
partially offset by unrealized depreciation on eight investments
in portfolio companies totaling $2.7 million,
(ii) unrealized appreciation of $0.4 million from
marketable securities investments and
(ii) $0.4 million in unrealized depreciation
attributable to our investment in the affiliated Investment
Manager. For the third quarter of 2009, we also recognized a net
income tax benefit of $1.3 million principally related to
deferred taxes on unrealized depreciation on certain portfolio
investments held in our taxable subsidiary.
As a result of these events, our net increase in net assets
resulting from operations during the three months ended
September 30, 2009 was $7.0 million compared to a net
increase in net assets resulting from operations of
$2.7 million for the three months ended September 30,
2008.
S-28
Comparison
of Nine months ended September 30, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
Net Change
|
|
|
|
2009
|
|
|
2008
|
|
|
Amount
|
|
|
%
|
|
|
|
(Unaudited)
|
|
|
|
(Dollars in millions)
|
|
|
Total investment income
|
|
$
|
11.7
|
|
|
$
|
12.6
|
|
|
$
|
(0.9
|
)
|
|
|
(8
|
)%
|
Total expenses
|
|
|
(5.0
|
)
|
|
|
(5.0
|
)
|
|
|
|
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
6.7
|
|
|
|
7.6
|
|
|
|
(0.9
|
)
|
|
|
(12
|
)%
|
Total net realized gain from investments
|
|
|
1.5
|
|
|
|
5.0
|
|
|
|
(3.5
|
)
|
|
|
(71
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized income
|
|
|
8.2
|
|
|
|
12.6
|
|
|
|
(4.4
|
)
|
|
|
(35
|
)%
|
Net change in unrealized appreciation (depreciation) from
investments
|
|
|
1.3
|
|
|
|
(4.6
|
)
|
|
|
5.9
|
|
|
|
NM
|
|
Income tax benefit (provision)
|
|
|
0.8
|
|
|
|
2.3
|
|
|
|
(1.5
|
)
|
|
|
(66
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting from operations
|
|
$
|
10.3
|
|
|
$
|
10.3
|
|
|
$
|
|
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
Net Change
|
|
|
|
2009
|
|
|
2008
|
|
|
Amount
|
|
|
%
|
|
|
|
(Unaudited)
|
|
|
|
(Dollars in millions)
|
|
|
Net investment income
|
|
$
|
6.7
|
|
|
$
|
7.6
|
|
|
$
|
(0.9
|
)
|
|
|
(12
|
)%
|
Share-based compensation expense
|
|
|
0.8
|
|
|
|
0.3
|
|
|
|
0.5
|
|
|
|
143
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributable net investment income(a)
|
|
|
7.5
|
|
|
|
7.9
|
|
|
|
(0.4
|
)
|
|
|
(6
|
)%
|
Total net realized gain from investments
|
|
|
1.5
|
|
|
|
5.0
|
|
|
|
(3.5
|
)
|
|
|
(71
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributable net realized income(a)
|
|
$
|
9.0
|
|
|
$
|
12.9
|
|
|
$
|
(3.9
|
)
|
|
|
(31
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributable net investment income per share Basic
and diluted
|
|
$
|
0.77
|
|
|
$
|
0.88
|
|
|
$
|
(0.11
|
)
|
|
|
(13
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributable net realized income per share Basic
and diluted
|
|
$
|
0.92
|
|
|
$
|
1.43
|
|
|
$
|
(0.51
|
)
|
|
|
(35
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Distributable net investment income and distributable net
realized income are net investment income and net realized
income, respectively, as determined in accordance with U.S.
generally accepted accounting principles, or GAAP, excluding the
impact of share-based compensation expense which is non-cash in
nature. Main Street believes presenting distributable net
investment income and distributable net realized income are
useful and appropriate supplemental disclosures for analyzing
its financial performance since share-based compensation does
not require settlement in cash. However, distributable net
investment income and distributable net realized income are
non-GAAP measures and should not be considered as a replacement
to net investment income, net realized income, and other
earnings measures presented in accordance with GAAP. Instead,
distributable net investment income and distributable net
realized income should be reviewed only in connection with such
GAAP measures in analyzing Main Streets financial
performance. A reconciliation of net investment income and net
realized income in accordance with GAAP to distributable net
investment income and distributable net realized income is
presented in the table above. |
Investment
Income
For the nine months ended September 30, 2009, total
investment income was $11.7 million, a $0.9 million,
or 8%, decrease over the $12.6 million of total investment
income for the nine months ended September 30, 2008. This
comparable period decrease was principally attributable to
(i) lower dividend income of $0.7 million
S-29
due to certain portfolio companies retaining their excess cash
flow as additional cushion given reduced economic visibility and
lower near-term earnings expectations and (ii) reduced
levels of fee income due to lower new investment originations;
partially offset by higher interest income from marketable
securities and idle funds investments on higher average levels
of such investments.
Expenses
For the nine months ended September 30, 2009, expenses
totaled $5.0 million, a 1% decrease, over the
$5.0 million of total expenses for the nine months ended
September 30, 2008. The decrease in total expenses was
primarily attributable to a $0.6 million reduction in
general, administrative and other overhead expenses. The
reduction in general, administrative and overhead costs
primarily related to (i) lower accrued compensation expense
given lower investment income levels, (ii) consulting fees
received by the affiliated Investment Manager during the first
nine months of 2009 and (iii) reduced costs for certain
legal and administrative activities based upon developing
internal resources to perform such activities. The decrease in
general, administrative and other overhead expenses was
partially offset by (i) a $0.5 million increase in
share-based compensation expense related to non-cash
amortization for restricted share grants, and (ii) a
$0.1 million increase in interest expense principally
related to unused commitment and other fees from the
$30 million investment credit facility entered into on
October 24, 2008.
Distributable
Net Investment Income
Distributable net investment income for the nine months ended
September 30, 2009 was $7.5 million, or a 6% decrease,
compared to distributable net investment income of
$7.9 million during the nine months ended
September 30, 2008. The decrease in distributable net
investment income was primarily attributable to reduced levels
of total investment income, partially offset by lower general,
administrative and overhead expenses as discussed above.
Net
Investment Income
Net investment income for the nine months ended
September 30, 2009 was $6.7 million, or a 12%
decrease, compared to net investment income of $7.6 million
during the nine months ended September 30, 2008. The
decrease in net investment income was principally attributable
to the decrease in total investment income, partially offset by
lower general, administrative and overhead expenses as discussed
above.
Distributable
Net Realized Income
For the nine months ended September 30, 2009, distributable
net realized income was $9.0 million, or a 31% decrease,
compared to distributable net realized income of
$12.9 million for the nine months ended September 30,
2008. The decrease in distributable net realized income was
primarily attributable to a higher level of net realized gain
related to the exit of several portfolio company investments and
the decrease in distributable net investment income. For the
nine months ended September 30, 2009, the net realized gain
from investments was $1.5 million compared to net realized
gain of $5.0 million for the corresponding period in 2008.
The net realized gain during the nine months ended
September 30, 2009 principally included a $0.7 million
realized gain related to the partial exit of our equity
investments in one portfolio company and $0.6 million in
net realized gains related to marketable securities investments.
Net
Realized Income
The lower net investment income and the lower net realized gain
for the nine months ended September 30, 2009, resulted in a
$4.4 million, or 35%, decrease in the net realized income
for the nine months ended September 30, 2009 compared with
the corresponding period in 2008.
Net
Increase in Net Assets from Operations
During the nine months ended September 30, 2009, we
recorded a net change in unrealized appreciation in the amount
of $1.3 million, or a $5.9 million increase, compared
to the $4.6 million net change in
S-30
unrealized depreciation for the nine months ended
September 30, 2008. The $1.3 million net change in
unrealized appreciation for the first nine months of 2009 was
principally attributable to (i) $1.0 million in
accounting reversals of net unrealized appreciation attributable
to the total net realized gain on the exit of the portfolio
equity investments and marketable securities investments
discussed above, (ii) unrealized appreciation on thirteen
investments in portfolio companies totaling $9.9 million,
partially offset by unrealized depreciation on thirteen
investments in portfolio companies totaling $7.6 million,
(iii) $0.3 million in unrealized appreciation related
to marketable securities investments and
(iv) $0.3 million in unrealized depreciation
attributable to our investment in the affiliated Investment
Manager. For the first nine months of 2009, we also recognized a
net income tax benefit of $0.8 million principally related
to deferred taxes on unrealized depreciation on certain
portfolio investments held in our taxable subsidiary.
As a result of these events, our net increase in net assets
resulting from operations during the nine months ended
September 30, 2009 was $10.3 million compared to a net
increase in net assets resulting from operations of
$10.3 million for the nine months ended September 30,
2008.
Liquidity
and Capital Resources
Cash
Flows
For the nine months ended September 30, 2009, we
experienced a net decrease in cash and cash equivalents in the
amount of $27.2 million. During that period, we generated
$4.6 million of cash from our operating activities,
primarily from distributable net investment income partially
offset by (i) the semi-annual interest payments on our SBIC
debentures, (ii) decreases in accounts payable, and
(iii) non-cash interest and dividends. We used
$37.8 million in net cash from investing activities,
principally including the funding of $72.9 million for
marketable securities and idle funds investments and the funding
of $16.5 million for new core portfolio company
investments, partially offset by $44.0 million of cash
proceeds from the sale of marketable securities and idle funds
investments and $7.6 million in cash proceeds from the
repayment of core portfolio debt investments. During the first
nine months of 2009, $6.1 million in cash was provided by
financing activities, which principally consisted of
$16.2 million in net cash proceeds from a public stock
offering, partially offset by $8.5 million in cash
dividends to stockholders and $1.6 million in purchases of
shares of our common stock as part of our share repurchase
program.
For the nine months ended September 30, 2008, we
experienced a net increase in cash and cash equivalents in the
amount of $5.0 million. During that period, we generated
$7.1 million of cash from our operating activities,
primarily from distributable net investment income partially
offset by the semi-annual interest payments on our SBIC
debentures. We also generated $7.7 million in net cash from
investing activities, principally including proceeds from the
maturity of a $24.1 million investment in idle funds
investments, $10.7 million in cash proceeds from repayment
of core portfolio debt investments and $7.4 million of cash
proceeds from the redemption and sale of core portfolio equity
investments, partially offset by the funding of new core
portfolio investments and several smaller follow-on investments
totaling $34.5 million. For the nine months ended
September 30, 2008, we used $9.8 million in cash for
financing activities, which principally consisted of cash
dividends to stockholders.
Capital
Resources
As of September 30, 2009, we had $48.1 million in cash
and cash equivalents, marketable securities, and idle funds
investments, and our net assets totaled $129.1 million, or
$12.01 per share. In June 2009, we completed a follow-on public
stock offering in which we sold 1,437,500 shares of common
stock, including the underwriters exercise of the
over-allotment option, at a price to the public of $12.10 per
share, resulting in total net proceeds of approximately
$16.2 million, after deducting underwriters
commissions and offering costs.
On October 24, 2008, Main Street entered into a
$30 million, three-year investment credit facility (the
Investment Facility) with Branch Banking and
Trust Company (BB&T) and Compass Bank, as
lenders, and BB&T, as administrative agent for the lenders.
The purpose of the Investment Facility is to provide additional
liquidity in support of future investment and operational
activities. The Investment Facility allows
S-31
for an increase in the total size of the facility up to
$75 million, subject to certain conditions, and has a
maturity date of October 24, 2011. Borrowings under the
Investment Facility bear interest, subject to Main Streets
election, on a per annum basis equal to (i) the applicable
LIBOR rate plus 2.75% or (ii) the applicable base rate plus
0.75%. Main Street pays unused commitment fees of 0.375% per
annum on the average unused lender commitments under the
Investment Facility. The Investment Facility contains certain
affirmative and negative covenants, including but not limited
to: (i) maintaining a minimum liquidity of not less than
10% of the aggregate principal amount outstanding,
(ii) maintaining an interest coverage ratio of at least 2.0
to 1.0, and (iii) maintaining a minimum tangible net worth.
At September 30, 2009, Main Street had no borrowings
outstanding under the Investment Facility, and Main Street was
in compliance with all covenants of the Investment Facility.
Due to the Funds status as a licensed SBIC, we have the
ability to issue, through the Fund, debentures guaranteed by the
SBA at favorable interest rates. Under the regulations
applicable to SBIC funds, an SBIC can have outstanding
debentures guaranteed by the SBA generally in an amount up to
twice its regulatory capital, which effectively approximate the
amount of its equity capital. Debentures guaranteed by the SBA
have fixed interest rates that equal prevailing
10-year
Treasury Note rates plus a market spread and have a maturity of
ten years with interest payable semi-annually. The principal
amount of the debentures is not required to be paid before
maturity but may be pre-paid at any time. Debentures issued
prior to September 2006 were subject to pre-payment penalties
during their first five years. Those pre-payment penalties no
longer apply to debentures issued after September 1, 2006.
On September 30, 2009, we, through the Fund, had
$55 million of outstanding indebtedness guaranteed by the
SBA, which carried an average fixed interest rate of
approximately 5.8%. The first maturity related to the SBIC
debentures does not occur until 2013, and the weighted average
duration is 5.7 years as of September 30, 2009.
The Stimulus Bill contains several provisions applicable to SBIC
funds, including the Fund, our wholly owned subsidiary. One of
the key SBIC-related provisions included in the Stimulus Bill
increased the maximum amount of combined SBIC leverage (or SBIC
leverage cap) to $225 million for affiliated SBIC funds.
The prior maximum amount of SBIC leverage available to
affiliated SBIC funds was approximately $137 million, as
adjusted annually based upon changes in the Consumer Price
Index. Due to the increase in the maximum amount of SBIC
leverage available to affiliated SBIC funds, we now have access
to incremental SBIC leverage to support our future investment
activities. Since the increase in the SBIC leverage cap applies
to affiliated SBIC funds, we will allocate such increased
borrowing capacity between the Fund and MSC II, an independently
owned SBIC that is managed by the Investment Manager and
therefore deemed to be affiliated for SBIC regulatory purposes.
For more discussion of MSC II, please refer above to the section
titled MSC II Exchange Offer. Exclusive of the SBIC
leverage available to MSC II, we estimate that we have access to
at least $65 million of the additional SBIC leverage from
the Stimulus Bill subject to the required capitalization of the
Fund.
Due to our existing cash and cash equivalents, marketable
securities, and idle funds investments and the available
borrowing capacity through both the SBIC program and the
Investment Facility, we project that we will have sufficient
liquidity to fund our investment and operational activities for
the remainder of 2009 and through most of calendar year 2010.
However, this projection will be impacted by, among other
things, the pace of new and follow-on investments, debt
repayments and investment redemptions, the level of cash flow
from operations and cash flow from realized gains, and the level
of dividends we pay in cash. We anticipate that we will continue
to fund our investment activities through existing cash and cash
equivalents, the liquidation of marketable securities, and idle
funds investments, and a combination of future debt and equity
capital.
We intend to generate additional cash from future offerings of
securities, future borrowings, repayments or sales of
investments, and cash flow from operations, including income
earned from investments in our portfolio companies and, to a
lesser extent, from the liquidation of marketable securities and
idle funds investments. Our primary uses of funds will be
investments in portfolio companies, operating expenses and cash
distributions to holders of our common stock.
S-32
We periodically invest excess cash balances into marketable
securities and idle funds investments. The investment objective
of marketable securities and idle funds investments is to
generate incremental cash returns on excess cash balances prior
to utilizing those funds for investment in our core portfolio
investment strategy. Marketable securities and idle funds
investments generally consist of secured debt investments,
certificates of deposit with financial institutions, and
diversified bond funds. The composition of marketable securities
and idle funds investments will vary in a given period based
upon, among other things, changes in market conditions, the
underlying fundamentals in our marketable securities and idle
funds investments, our outlook regarding future core portfolio
investment needs, and any regulatory requirements applicable to
Main Street.
If our common stock trades below our net asset value per share,
we will generally not be able to issue additional common stock
at the market price unless our stockholders approve such a sale
and our Board of Directors makes certain determinations. A
proposal, approved by our stockholders at our June 2009 annual
meeting of stockholders, authorizes us to sell shares of our
common stock below the then current net asset value per share of
our common stock in one or more offerings for a period of one
year ending on the earlier of June 11, 2010 or the date of
our 2010 annual meeting of stockholders. We would need approval
of a similar proposal by our stockholders to issue shares below
the then current net asset value per share any time after the
expiration of the current approval.
In order to satisfy the Code requirements applicable to a RIC,
we intend to distribute to our stockholders substantially all of
our taxable income, but we may also elect to periodically
spillover certain excess undistributed taxable income from one
tax year into the next tax year. In addition, as a BDC, we
generally are required to meet a coverage ratio of total assets
to total senior securities, which include borrowings and any
preferred stock we may issue in the future, of at least 200%.
This requirement limits the amount that we may borrow. In
January 2008, we received exemptive relief from the SEC that
permits us to exclude SBA-guaranteed debt issued by the Fund
from our asset coverage ratio, which, in turn, enables us to
fund more investments with debt capital. Subsequent to
consummation of the exchange offer for a majority of the limited
partner interests in MSC II, we expect to seek similar relief to
exclude SBA-guaranteed debt issued by MSC II from our asset
coverage ratio.
On December 31, 2007, we entered into a treasury-based
credit facility (the Treasury Facility) with
Wachovia Bank, National Association and BB&T, as
administrative agent for the lenders. The purpose of the
Treasury Facility was to provide flexibility in the sizing of
core portfolio investments and to facilitate the growth of our
core investment portfolio. However, due to the maturation of our
core investment portfolio and the additional flexibility
provided by the Investment Facility, we unilaterally terminated
the Treasury Facility on July 10, 2009 in order to
eliminate the unused commitment fees that would have been paid
under this facility over its remaining term.
Current
Market Conditions
The broader economic fundamentals of the United States economy
remain at depressed levels. Unemployment levels remain elevated
and consumer fundamentals remain depressed, which has led to
significant reductions in spending by both consumers and
businesses.
Although we have been able to secure access to additional
liquidity, including our recent public stock offering, the
$30 million Investment Facility, and the increase in
available leverage through the SBIC program as part of the
Stimulus Bill, there is no assurance that debt or equity capital
will be available to us in the future on favorable terms, or at
all.
The deterioration in consumer confidence and a general reduction
in spending by both consumers and businesses has had an adverse
effect on a number of the industries in which some of our
portfolio companies operate. The results of some of the lower
middle-market companies like those in which we invest, may
continue to experience deterioration, which could ultimately
lead to difficulty in meeting their debt service requirements
and an increase in their defaults. In addition, the end markets
for certain of our portfolio companies products and
services have experienced negative economic trends. We can
provide no assurance that the performance of our portfolio
companies will not be negatively impacted by economic or other
conditions, which could have a negative impact on our future
results.
S-33
Recently
Issued Accounting Standards
In June 2008, the FASB amended ASC 260, Earnings Per Share
with ASC
260-10-45-61A
which addresses whether instruments granted in share-based
payment transactions are participating securities prior to
vesting and, therefore, need to be included in the earnings
allocation in computing earnings per share (EPS).
ASC
260-10-45-61A
is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods
within those years. All prior-period EPS data presented has been
adjusted retrospectively (including interim financial
statements, summaries of earnings, and selected financial data)
to conform to the amended provisions of ASC 260. Early
application is not permitted. We have determined that shares of
restricted stock granted to our employees and directors are
participating securities prior to vesting. For the nine months
ended September 30, 2009 and 2008, 292,058 and
255,645 shares, respectively, of non-vested restricted
stock have been included in our basic and diluted EPS
computations.
In October 2008, the FASB amended ASC 820 with ASC
820-10-35-15A,
Financial Assets in a Market That Is Not Active , to
provide an illustrative example of how to determine the fair
value of a financial asset in an inactive market. ASC
820-10-35-15A
does not change the fair value measurement principles previously
set forth. Since adopting ASC 820 in January 2008, our practices
for determining the fair value of our investment portfolio and
financial instruments have been, and continue to be, consistent
with the guidance provided in ASC
820-10-35-15A.
Therefore, our adoption of the update did not affect our
practices for determining the fair value of our investment
portfolio and financial instruments, and our adoption did not
have a material effect on our financial position or results of
operations.
In April 2009, the FASB amended ASC 820 and ASC 825 with ASC
820-10-35,
Subsequent Measurement, and ASC
825-10-65,
Transition and Open Effective Date Information. Both
amendments are effective for reporting periods ending on or
after June 15, 2009. Since adopting ASC 820 and ASC 825 in
January 2008, our practices for determining fair value and for
disclosures about the fair value of our investment portfolio and
financial instruments have been, and continue to be, consistent
with the guidance provided in the amended pronouncements.
Therefore, our adoption of these updates did not affect our
practices for determining the fair value of our investment
portfolio and financial instruments, and our adoption did not
have a material effect on our financial position or results of
operations.
In May 2009, the FASB amended ASC 855, Subsequent Events
with ASC
855-10-50,
Disclosure , which establishes general standards of
accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued or
are available to be issued. ASC
855-10-50
includes a new required disclosure of the date through which an
entity has evaluated subsequent events and is effective for
interim periods or fiscal years ending after June 15, 2009.
Our adoption of ASC
855-10-50
did not have a material effect on our financial position or
results of operations.
In June 2009, the FASB issued ASC 105, Generally Accepted
Accounting Principles , which became the single official
source of authoritative, nongovernmental U.S. GAAP, other
than rules and interpretive releases issued by the Securities
and Exchange Commission. The Codification reorganized the
literature and changed the naming mechanism by which topics are
referenced. ASC 105 was effective for us during our interim
period ended September 30, 2009. As required, references to
pre-codification accounting literature have been changed
throughout this prospectus supplement to appropriately reference
the Codification. Our accounting policies and amounts presented
in the financial statements were not impacted by this change.
Inflation
Inflation has not had a significant effect on our results of
operations in any of the reporting periods presented in this
prospectus supplement. However, our portfolio companies have
experienced, and may in the future experience, the impacts of
inflation on their operating results, including periodic
escalations in their costs for raw materials and required energy
consumption.
S-34
Off-Balance
Sheet Arrangements
We may be a party to financial instruments with off-balance
sheet risk in the normal course of business to meet the
financial needs of our portfolio companies. These instruments
include commitments to extend credit and involve, to varying
degrees, elements of liquidity and credit risk in excess of the
amount recognized in the balance sheet. At September 30,
2009, we had two outstanding commitments to fund unused
revolving loans for up to $900,000 in total.
Contractual
Obligations
As of September 30, 2009, our future fixed commitments for
cash payments on contractual obligations for each of the next
five years and thereafter are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 and
|
|
|
|
Total
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
thereafter
|
|
|
SBIC debentures payable
|
|
$
|
55,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,000
|
|
|
$
|
18,000
|
|
|
$
|
33,000
|
|
Interest due on SBIC debentures
|
|
|
18,316
|
|
|
|
3,179
|
|
|
|
3,179
|
|
|
|
3,188
|
|
|
|
3,179
|
|
|
|
2,873
|
|
|
|
2,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
73,316
|
|
|
$
|
3,179
|
|
|
$
|
3,179
|
|
|
$
|
3,188
|
|
|
$
|
7,179
|
|
|
$
|
20,873
|
|
|
$
|
35,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MSCC is obligated to make payments under a support services
agreement with the Investment Manager. Subsequent to the
completion of the Formation Transactions and the IPO, the
Investment Manager is reimbursed for its excess cash expenses
associated with providing investment management and other
services to MSCC and its subsidiaries, as well as MSC II and
other third parties. Each quarter, as part of the support
services agreement, MSCC makes payments to cover all cash
expenses incurred by the Investment Manager, less the recurring
management fees that the Investment Manager receives from MSC II
pursuant to a long-term investment advisory services agreement
and any other fees received from third parties for providing
external services.
Related
Party Transactions
We co-invested with MSC II in several existing core portfolio
investments prior to the IPO, but did not co-invest with MSC II
subsequent to the IPO and prior to June 2008. In June 2008, we
received exemptive relief from the SEC to allow us to resume
co-investing with MSC II in accordance with the terms of such
exemptive relief. MSC II is managed by the Investment Manager,
and the Investment Manager is wholly owned by MSCC. MSC II is an
SBIC fund with similar investment objectives to Main Street and
which began its investment operations in January 2006. The
co-investments among Main Street and MSC II had all been made at
the same time and on the same terms and conditions. The
co-investments were also made in accordance with the Investment
Managers conflicts policy and in accordance with the
applicable SBIC conflict of interest regulations. See
Prospectus Summary Recent
Developments The Exchange Offer for a
discussion of the consummation of the Exchange Offer and related
transactions.
As discussed further in Note D to the accompanying
consolidated financials statements, subsequent to the completion
of the Formation Transactions, the Investment Manager is a
wholly owned portfolio company of Main Street. At
September 30, 2009 and December 31, 2008, the
Investment Manager had a receivable of $212,349 and $302,633,
respectively, with MSCC related to cash expenses incurred by the
Investment Manager required to support Main Streets
business.
S-35
INTERIM
FINANCIAL STATEMENTS
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
|
|
ASSETS
|
Investments at fair value:
|
|
|
|
|
|
|
|
|
Control investments (cost: $65,050,864 and $60,767,805 as of
September 30, 2009 and December 31, 2008, respectively)
|
|
$
|
69,722,443
|
|
|
$
|
65,542,608
|
|
Affiliate investments (cost: $41,746,184 and $37,946,800 as of
September 30, 2009 and December 31, 2008, respectively)
|
|
|
44,822,099
|
|
|
|
39,412,695
|
|
Non-Control/Non-Affiliate investments (cost: $9,886,824 and
$6,245,405 as of September 30, 2009 and December 31,
2008, respectively)
|
|
|
8,914,181
|
|
|
|
5,375,886
|
|
Investment in affiliated Investment Manager (cost: $18,000,000
as of September 30, 2009 and December 31, 2008)
|
|
|
16,340,706
|
|
|
|
16,675,626
|
|
|
|
|
|
|
|
|
|
|
Total investments (cost: $134,683,872 and $122,960,010 as of
September 30, 2009 and December 31, 2008, respectively)
|
|
|
139,799,429
|
|
|
|
127,006,815
|
|
Marketable securities and idle funds investments (cost:
$39,498,257 and $4,218,704 as of September 30, 2009 and
December 31, 2008, respectively)
|
|
|
39,912,232
|
|
|
|
4,389,795
|
|
Cash and cash equivalents
|
|
|
8,216,699
|
|
|
|
35,374,826
|
|
Deferred tax asset
|
|
|
1,186,108
|
|
|
|
1,121,681
|
|
Other assets
|
|
|
1,095,078
|
|
|
|
1,100,922
|
|
Deferred financing costs (net of accumulated amortization of
$982,066 and $956,037 as of September 30, 2009 and
December 31, 2008, respectively)
|
|
|
1,420,726
|
|
|
|
1,635,238
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
191,630,272
|
|
|
$
|
170,629,277
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
SBIC debentures
|
|
$
|
55,000,000
|
|
|
$
|
55,000,000
|
|
Marketable securities settlement liability
|
|
|
5,773,480
|
|
|
|
|
|
Interest payable
|
|
|
289,730
|
|
|
|
1,108,193
|
|
Dividend payable
|
|
|
1,343,701
|
|
|
|
726,464
|
|
Accounts payable and other liabilities
|
|
|
160,536
|
|
|
|
1,438,564
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
62,567,447
|
|
|
|
58,273,221
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
NET ASSETS
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value per share
(150,000,000 shares authorized; 10,749,640 and 9,206,483
issued and outstanding as of September 30, 2009 and
December 31, 2008, respectively)
|
|
|
107,496
|
|
|
|
92,065
|
|
Additional paid-in capital
|
|
|
121,886,302
|
|
|
|
104,467,740
|
|
Undistributed net realized income
|
|
|
830,071
|
|
|
|
3,658,495
|
|
Net unrealized appreciation from investments, net of income taxes
|
|
|
6,238,956
|
|
|
|
4,137,756
|
|
|
|
|
|
|
|
|
|
|
Total net assets
|
|
|
129,062,825
|
|
|
|
112,356,056
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and net assets
|
|
$
|
191,630,272
|
|
|
$
|
170,629,277
|
|
|
|
|
|
|
|
|
|
|
NET ASSET VALUE PER SHARE
|
|
$
|
12.01
|
|
|
$
|
12.20
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements
S-36
MAIN
STREET CAPITAL CORPORATION
Consolidated
Statements of Operations
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended September 30,
|
|
|
Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
INVESTMENT INCOME:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest, fee and dividend income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Control investments
|
|
$
|
2,519,354
|
|
|
$
|
2,861,564
|
|
|
$
|
6,353,175
|
|
|
$
|
7,436,174
|
|
Affiliate investments
|
|
|
1,022,440
|
|
|
|
1,037,464
|
|
|
|
3,357,997
|
|
|
|
3,146,326
|
|
Non-Control/Non-Affiliate investments
|
|
|
272,703
|
|
|
|
320,976
|
|
|
|
668,876
|
|
|
|
1,220,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest, fee and dividend income
|
|
|
3,814,497
|
|
|
|
4,220,004
|
|
|
|
10,380,048
|
|
|
|
11,802,666
|
|
Interest from marketable securities, idle funds and other
|
|
|
687,101
|
|
|
|
237,320
|
|
|
|
1,314,045
|
|
|
|
858,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment income
|
|
|
4,501,598
|
|
|
|
4,457,324
|
|
|
|
11,694,093
|
|
|
|
12,661,601
|
|
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
(957,413
|
)
|
|
|
(930,332
|
)
|
|
|
(2,830,325
|
)
|
|
|
(2,734,174
|
)
|
General and administrative
|
|
|
(317,141
|
)
|
|
|
(406,277
|
)
|
|
|
(1,061,928
|
)
|
|
|
(1,271,338
|
)
|
Expenses reimbursed to affiliated Investment Manager
|
|
|
(226,237
|
)
|
|
|
(275,039
|
)
|
|
|
(306,175
|
)
|
|
|
(719,777
|
)
|
Share-based compensation
|
|
|
(375,766
|
)
|
|
|
(315,726
|
)
|
|
|
(767,218
|
)
|
|
|
(315,726
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
(1,876,557
|
)
|
|
|
(1,927,374
|
)
|
|
|
(4,965,646
|
)
|
|
|
(5,041,015
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INVESTMENT INCOME
|
|
|
2,625,041
|
|
|
|
2,529,950
|
|
|
|
6,728,447
|
|
|
|
7,620,586
|
|
NET REALIZED GAIN FROM INVESTMENTS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Control investments
|
|
|
|
|
|
|
4,320,213
|
|
|
|
865,651
|
|
|
|
4,320,213
|
|
Affiliate investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
710,404
|
|
Non-Control/Non-Affiliate investments
|
|
|
158,340
|
|
|
|
|
|
|
|
613,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net realized gain from investments
|
|
|
158,340
|
|
|
|
4,320,213
|
|
|
|
1,478,834
|
|
|
|
5,030,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET REALIZED INCOME
|
|
|
2,783,381
|
|
|
|
6,850,163
|
|
|
|
8,207,281
|
|
|
|
12,651,203
|
|
NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) FROM
INVESTMENTS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Control investments
|
|
|
1,043,776
|
|
|
|
(4,557,143
|
)
|
|
|
(103,224
|
)
|
|
|
(3,672,439
|
)
|
Affiliate investments
|
|
|
1,711,494
|
|
|
|
840,429
|
|
|
|
1,610,021
|
|
|
|
(100,523
|
)
|
Non-Control/Non-Affiliate investments
|
|
|
516,278
|
|
|
|
(165,531
|
)
|
|
|
139,759
|
|
|
|
(106,765
|
)
|
Investment in affiliated Investment Manager
|
|
|
(390,238
|
)
|
|
|
(239,844
|
)
|
|
|
(334,920
|
)
|
|
|
(704,306
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net change in unrealized appreciation (depreciation) from
investments
|
|
|
2,881,310
|
|
|
|
(4,122,089
|
)
|
|
|
1,311,636
|
|
|
|
(4,584,033
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (provision) benefit
|
|
|
1,372,451
|
|
|
|
(54,371
|
)
|
|
|
789,564
|
|
|
|
2,297,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
|
|
$
|
7,037,142
|
|
|
$
|
2,673,703
|
|
|
$
|
10,308,481
|
|
|
$
|
10,364,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INVESTMENT INCOME PER SHARE BASIC AND
DILUTED
|
|
$
|
0.25
|
|
|
$
|
0.27
|
|
|
$
|
0.69
|
|
|
$
|
0.84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET REALIZED INCOME PER SHARE BASIC AND
DILUTED
|
|
$
|
0.26
|
|
|
$
|
0.74
|
|
|
$
|
0.84
|
|
|
$
|
1.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DIVIDENDS PAID PER SHARE
|
|
$
|
0.38
|
|
|
$
|
0.36
|
|
|
$
|
1.13
|
|
|
$
|
1.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS PER
SHARE BASIC AND DILUTED
|
|
$
|
0.66
|
|
|
$
|
0.29
|
|
|
$
|
1.05
|
|
|
$
|
1.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE SHARES OUTSTANDING BASIC
AND DILUTED
|
|
|
10,701,603
|
|
|
|
9,228,630
|
|
|
|
9,788,226
|
|
|
|
9,050,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements
S-37
MAIN
STREET CAPITAL CORPORATION
Consolidated
Statements of Changes in Net Assets
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Appreciation from
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
Undistributed
|
|
|
Investments,
|
|
|
Total
|
|
|
|
Number
|
|
|
Par
|
|
|
Paid-In
|
|
|
Net Realized
|
|
|
Net of Income
|
|
|
Net
|
|
|
|
of Shares
|
|
|
Value
|
|
|
Capital
|
|
|
Income
|
|
|
Taxes
|
|
|
Assets
|
|
|
Balances at December 31, 2007
|
|
|
8,959,718
|
|
|
$
|
89,597
|
|
|
$
|
104,076,033
|
|
|
$
|
6,067,131
|
|
|
$
|
4,916,447
|
|
|
$
|
115,149,208
|
|
Issuance of restricted stock
|
|
|
265,645
|
|
|
|
2,657
|
|
|
|
(2,657
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend reinvestment
|
|
|
15,820
|
|
|
|
158
|
|
|
|
213,570
|
|
|
|
|
|
|
|
|
|
|
|
213,728
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
315,726
|
|
|
|
|
|
|
|
|
|
|
|
315,726
|
|
Dividends to stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,625,278
|
)
|
|
|
|
|
|
|
(10,625,278
|
)
|
Net increase resulting from operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,651,203
|
|
|
|
(2,286,768
|
)
|
|
|
10,364,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at September 30, 2008
|
|
|
9,241,183
|
|
|
$
|
92,412
|
|
|
$
|
104,602,672
|
|
|
$
|
8,093,056
|
|
|
$
|
2,629,679
|
|
|
$
|
115,417,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2008
|
|
|
9,206,483
|
|
|
$
|
92,065
|
|
|
$
|
104,467,740
|
|
|
$
|
3,658,495
|
|
|
$
|
4,137,756
|
|
|
$
|
112,356,056
|
|
Dividend reinvestment
|
|
|
178,780
|
|
|
|
1,787
|
|
|
|
2,343,329
|
|
|
|
|
|
|
|
|
|
|
|
2,345,116
|
|
Public offering of common stock, net of offering costs
|
|
|
1,437,500
|
|
|
|
14,375
|
|
|
|
16,176,533
|
|
|
|
|
|
|
|
|
|
|
|
16,190,908
|
|
Share repurchase program
|
|
|
(164,544
|
)
|
|
|
(1,645
|
)
|
|
|
(1,615,461
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,617,106
|
)
|
Issuance of restricted stock
|
|
|
107,824
|
|
|
|
1,078
|
|
|
|
(1,078
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
767,218
|
|
|
|
|
|
|
|
|
|
|
|
767,218
|
|
Common stock withheld for payroll taxes on restricted stock
|
|
|
(16,403
|
)
|
|
|
(164
|
)
|
|
|
(251,979
|
)
|
|
|
|
|
|
|
|
|
|
|
(252,143
|
)
|
Dividends to stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,035,705
|
)
|
|
|
|
|
|
|
(11,035,705
|
)
|
Net increase resulting from operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,207,281
|
|
|
|
2,101,200
|
|
|
|
10,308,481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at September 30, 2009
|
|
|
10,749,640
|
|
|
$
|
107,496
|
|
|
$
|
121,886,302
|
|
|
$
|
830,071
|
|
|
$
|
6,238,956
|
|
|
$
|
129,062,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements
S-38
MAIN
STREET CAPITAL CORPORATION
Consolidated
Statements of Cash Flows
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting from operations:
|
|
$
|
10,308,481
|
|
|
$
|
10,364,435
|
|
Adjustments to reconcile net increase in net assets resulting
from operations to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Net change in unrealized appreciation from investments
|
|
|
(1,311,636
|
)
|
|
|
4,584,033
|
|
Net realized gain from investments
|
|
|
(1,478,834
|
)
|
|
|
(5,030,617
|
)
|
Accretion of unearned income
|
|
|
(457,835
|
)
|
|
|
(886,902
|
)
|
Net
payment-in-kind
interest accrual
|
|
|
(458,738
|
)
|
|
|
(258,573
|
)
|
Share-based compensation expense
|
|
|
767,218
|
|
|
|
315,726
|
|
Amortization of deferred financing costs
|
|
|
324,935
|
|
|
|
229,220
|
|
Deferred taxes
|
|
|
(64,427
|
)
|
|
|
(2,787,364
|
)
|
Other
|
|
|
(732,326
|
)
|
|
|
432,966
|
|
Changes in other assets and liabilities:
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
(247,416
|
)
|
|
|
696,774
|
|
Interest payable
|
|
|
(818,463
|
)
|
|
|
(763,026
|
)
|
Accounts payable and other liabilities
|
|
|
(1,278,820
|
)
|
|
|
198,850
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
4,552,139
|
|
|
|
7,095,522
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Investments in portfolio companies
|
|
|
(16,540,965
|
)
|
|
|
(34,485,324
|
)
|
Investments in marketable securities and idle funds investments
|
|
|
(72,925,566
|
)
|
|
|
|
|
Proceeds from marketable securities and idle funds investments
|
|
|
44,036,959
|
|
|
|
24,063,261
|
|
Principal payments received on loans and debt securities
|
|
|
7,580,630
|
|
|
|
10,691,302
|
|
Proceeds from sale of equity securities and related notes
|
|
|
|
|
|
|
7,409,464
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(37,848,942
|
)
|
|
|
7,678,703
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Share repurchase program
|
|
|
(1,617,106
|
)
|
|
|
|
|
Proceeds from public offering of common stock, net of offering
costs
|
|
|
16,190,908
|
|
|
|
|
|
Dividends paid to stockholders
|
|
|
(8,472,560
|
)
|
|
|
(9,289,608
|
)
|
Net change in DRIP deposit
|
|
|
400,000
|
|
|
|
(500,000
|
)
|
Common stock withheld for payroll taxes on restricted stock
|
|
|
(252,143
|
)
|
|
|
|
|
Payment of deferred loan costs and SBIC debenture fees
|
|
|
(110,423
|
)
|
|
|
(31,394
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
6,138,676
|
|
|
|
(9,821,002
|
)
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(27,158,127
|
)
|
|
|
4,953,223
|
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
|
|
35,374,826
|
|
|
|
41,889,324
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
|
$
|
8,216,699
|
|
|
$
|
46,842,547
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements
S-39
MAIN
STREET CAPITAL CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS
September 30, 2009
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio Company/Type of Investment(1)(2)
|
|
Industry
|
|
Principal(6)
|
|
|
Cost(6)
|
|
|
Fair Value
|
|
|
Control Investments(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Café Brazil, LLC
|
|
Casual Restaurant Group
|
|
|
|
|
|
|
|
|
|
|
|
|
12% Secured Debt (Maturity April 20, 2011)
|
|
|
|
$
|
2,625,000
|
|
|
$
|
2,610,188
|
|
|
$
|
2,625,000
|
|
Member Units(7) (Fully diluted 42.3%)
|
|
|
|
|
|
|
|
|
41,837
|
|
|
|
1,390,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,652,025
|
|
|
|
4,015,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CBT Nuggets, LLC
|
|
Produces and Sells IT
|
|
|
|
|
|
|
|
|
|
|
|
|
14% Secured Debt (Maturity December 31, 2013)
|
|
Certification Training
|
|
|
1,680,000
|
|
|
|
1,652,732
|
|
|
|
1,680,000
|
|
10% Secured Debt (Maturity March 31, 2012)
|
|
Videos
|
|
|
915,000
|
|
|
|
915,000
|
|
|
|
915,000
|
|
10% Secured Debt (Maturity March 31, 2010)
|
|
|
|
|
60,000
|
|
|
|
60,000
|
|
|
|
60,000
|
|
Member Units(7) (Fully diluted 24.5%)
|
|
|
|
|
|
|
|
|
299,520
|
|
|
|
1,390,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,927,252
|
|
|
|
4,045,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ceres Management, LLC (Lambs)
|
|
Aftermarket Automotive
|
|
|
|
|
|
|
|
|
|
|
|
|
14% Secured Debt (Maturity May 31, 2013)
|
|
Services Chain
|
|
|
2,400,000
|
|
|
|
2,376,126
|
|
|
|
2,376,126
|
|
Member Units (Fully diluted 42.0%)
|
|
|
|
|
|
|
|
|
1,200,000
|
|
|
|
1,110,000
|
|
Class B Member Units (Non-voting)
|
|
|
|
|
|
|
|
|
157,502
|
|
|
|
157,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,733,628
|
|
|
|
3,643,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condit Exhibits, LLC
|
|
Tradeshow Exhibits/ Custom
|
|
|
|
|
|
|
|
|
|
|
|
|
13% current / 5% PIK Secured Debt (Maturity
July 1, 2013)
|
|
Displays
|
|
|
2,473,846
|
|
|
|
2,442,974
|
|
|
|
2,442,974
|
|
Warrants (Fully diluted 28.1%)
|
|
|
|
|
|
|
|
|
300,000
|
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,742,974
|
|
|
|
2,472,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gulf Manufacturing, LLC
|
|
Industrial Metal Fabrication
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime plus 1% Secured Debt (Maturity August 31,
2012)
|
|
|
|
|
1,200,000
|
|
|
|
1,192,532
|
|
|
|
1,200,000
|
|
13% Secured Debt (Maturity August 31, 2012)
|
|
|
|
|
1,200,000
|
|
|
|
1,119,507
|
|
|
|
1,180,000
|
|
Member Units(7) (Fully diluted 18.4%)
|
|
|
|
|
|
|
|
|
472,000
|
|
|
|
2,360,000
|
|
Warrants (Fully diluted 8.4%)
|
|
|
|
|
|
|
|
|
160,000
|
|
|
|
1,080,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,944,039
|
|
|
|
5,820,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hawthorne Customs & Dispatch Services, LLC
|
|
Transportation/ Logistics
|
|
|
|
|
|
|
|
|
|
|
|
|
13% Secured Debt (Maturity January 31, 2011)
|
|
|
|
|
825,000
|
|
|
|
812,054
|
|
|
|
812,054
|
|
Member Units(7) (Fully diluted 44.4%)
|
|
|
|
|
|
|
|
|
412,500
|
|
|
|
840,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,224,554
|
|
|
|
1,652,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hydratec Holdings, LLC
|
|
Agricultural Services
|
|
|
|
|
|
|
|
|
|
|
|
|
12.5% Secured Debt (Maturity October 31, 2012)
|
|
|
|
|
2,995,244
|
|
|
|
2,953,861
|
|
|
|
2,953,861
|
|
Prime plus 1% Secured Debt (Maturity
October 31, 2012)
|
|
|
|
|
350,000
|
|
|
|
337,667
|
|
|
|
337,667
|
|
Member Units (Fully diluted 85.1%)
|
|
|
|
|
|
|
|
|
4,100,000
|
|
|
|
6,620,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,391,528
|
|
|
|
9,911,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jensen Jewelers of Idaho, LLC
|
|
Retail Jewelry
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime Plus 2% Secured Debt (Maturity
November 14, 2011)
|
|
|
|
|
1,044,000
|
|
|
|
1,034,207
|
|
|
|
1,046,167
|
|
13% current / 6% PIK Secured Debt (Maturity
November 14, 2011)
|
|
|
|
|
1,051,235
|
|
|
|
1,037,520
|
|
|
|
1,053,834
|
|
Member Units(7) (Fully diluted 24.3%)
|
|
|
|
|
|
|
|
|
376,000
|
|
|
|
290,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,447,727
|
|
|
|
2,390,001
|
|
S-40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio Company/Type of Investment(1)(2)
|
|
Industry
|
|
Principal(6)
|
|
|
Cost(6)
|
|
|
Fair Value
|
|
|
NAPCO Precast, LLC
|
|
Precast Concrete
|
|
|
|
|
|
|
|
|
|
|
|
|
18% Secured Debt (Maturity February 1, 2013)
|
|
Manufacturing
|
|
|
5,923,077
|
|
|
|
5,832,742
|
|
|
|
5,923,076
|
|
Prime Plus 2% Secured Debt (Maturity
February 1, 2013)(8)
|
|
|
|
|
3,384,615
|
|
|
|
3,360,369
|
|
|
|
3,384,616
|
|
Member Units(7) (Fully diluted 35.3%)
|
|
|
|
|
|
|
|
|
2,020,000
|
|
|
|
5,120,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,213,111
|
|
|
|
14,427,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OMi Holdings, Inc.
|
|
Manufacturer of Overhead
|
|
|
|
|
|
|
|
|
|
|
|
|
12% Secured Debt (Maturity April 1, 2013)
|
|
Cranes
|
|
|
6,342,000
|
|
|
|
6,295,703
|
|
|
|
6,295,703
|
|
Common Stock (Fully diluted 28.8%)
|
|
|
|
|
|
|
|
|
900,000
|
|
|
|
390,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,195,703
|
|
|
|
6,685,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quest Design & Production, LLC
|
|
Design and Fabrication of
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime plus 2% Secured Debt (Maturity June 30,
2014)
|
|
Custom Display Systems
|
|
|
60,000
|
|
|
|
60,000
|
|
|
|
60,000
|
|
10% Secured Debt (Maturity June 30, 2014)
|
|
|
|
|
600,000
|
|
|
|
465,060
|
|
|
|
600,000
|
|
0% Secured Debt (Maturity June 30, 2014)
|
|
|
|
|
2,060,000
|
|
|
|
2,060,000
|
|
|
|
1,460,000
|
|
Warrants (Fully diluted 40.0%)
|
|
|
|
|
|
|
|
|
1,595,858
|
|
|
|
|
|
Warrants (Fully diluted 20.0%)
|
|
|
|
|
|
|
|
|
40,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,220,918
|
|
|
|
2,120,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thermal & Mechanical Equipment, LLC
|
|
Heat Exchange / Filtration
|
|
|
3,302,750
|
|
|
|
3,257,974
|
|
|
|
3,257,974
|
|
13% current / 5% PIK Secured Debt (Maturity
September 25, 2014)
|
|
Products and Services
|
|
|
1,050,000
|
|
|
|
1,043,199
|
|
|
|
1,043,199
|
|
Prime plus 2% Secured Debt (Maturity
September 25, 2014)(8)
|
|
|
|
|
|
|
|
|
600,000
|
|
|
|
600,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants (Fully diluted 30.0%)
|
|
|
|
|
|
|
|
|
4,901,173
|
|
|
|
4,901,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Universal Scaffolding & Equipment, LLC
|
|
Manufacturer of Scaffolding
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime plus 1% Secured Debt (Maturity August 17,
2012)(8)
|
|
and Shoring Equipment
|
|
|
841,750
|
|
|
|
836,196
|
|
|
|
836,196
|
|
13% current / 5% PIK Secured Debt (Maturity
August 17, 2012)
|
|
|
|
|
3,377,176
|
|
|
|
3,332,000
|
|
|
|
21,262
|
|
Member Units (Fully diluted 18.9%)
|
|
|
|
|
|
|
|
|
992,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,160,259
|
|
|
|
857,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Uvalco Supply, LLC
|
|
Farm and Ranch Supply
|
|
|
|
|
|
|
|
|
|
|
|
|
Member Units (Fully diluted 39.6%)
|
|
|
|
|
|
|
|
|
905,743
|
|
|
|
1,390,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zieglers NYPD, LLC
|
|
Casual Restaurant Group
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime plus 2% Secured Debt (Maturity October 1,
2013)(8)
|
|
|
|
|
600,000
|
|
|
|
594,990
|
|
|
|
594,990
|
|
13% current / 5% PIK Secured Debt (Maturity
October 1, 2013)
|
|
|
|
|
2,808,544
|
|
|
|
2,774,151
|
|
|
|
2,774,151
|
|
Warrants (Fully diluted 28.6%)
|
|
|
|
|
|
|
|
|
360,000
|
|
|
|
360,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,729,141
|
|
|
|
3,729,141
|
|
Other
|
|
|
|
|
|
|
|
|
1,661,089
|
|
|
|
1,661,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Control Investments
|
|
|
|
|
|
|
|
|
65,050,864
|
|
|
|
69,722,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-41
MAIN
STREET CAPITAL CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS
September 30, 2009
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio Company/Type of Investment(1)(2)
|
|
Industry
|
|
Principal(6)
|
|
|
Cost(6)
|
|
|
Fair Value
|
|
|
Affiliate Investments(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advantage Millwork Company, Inc.
|
|
Manufacturer/Distributor of
|
|
|
|
|
|
|
|
|
|
|
|
|
12% Secured Debt (Maturity February 5, 2012)
|
|
Wood Doors
|
|
|
3,066,667
|
|
|
|
2,970,656
|
|
|
|
1,940,000
|
|
Warrants (Fully diluted 12.2%)
|
|
|
|
|
|
|
|
|
97,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,068,464
|
|
|
|
1,940,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American Sensor Technologies, Inc.
|
|
Manufacturer of Commercial/
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime plus 0.5% Secured Debt (Maturity May 31,
2010)(8)
|
|
Industrial Sensors
|
|
|
3,800,000
|
|
|
|
3,800,000
|
|
|
|
3,800,000
|
|
Warrants (Fully diluted 19.6%)
|
|
|
|
|
|
|
|
|
49,990
|
|
|
|
820,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,849,990
|
|
|
|
4,620,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carlton Global Resources, LLC
|
|
Processor of Industrial
|
|
|
|
|
|
|
|
|
|
|
|
|
13% PIK Secured Debt (Maturity November 15,
2011)
|
|
Minerals
|
|
|
4,791,944
|
|
|
|
4,655,836
|
|
|
|
|
|
Member Units (Fully diluted 8.5%)
|
|
|
|
|
|
|
|
|
400,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,055,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
California Healthcare Medical Billing, Inc.
|
|
Healthcare Billing and Records
|
|
|
|
|
|
|
|
|
|
|
|
|
12% Secured Debt (Maturity October 17, 2013)
|
|
Management
|
|
|
1,410,000
|
|
|
|
1,172,593
|
|
|
|
1,275,100
|
|
Common Stock (Fully diluted 6.0%)
|
|
|
|
|
|
|
|
|
390,000
|
|
|
|
750,000
|
|
Warrants (Fully diluted 12.0%)
|
|
|
|
|
|
|
|
|
240,000
|
|
|
|
1,130,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,802,593
|
|
|
|
3,155,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compact Power Equipment Centers, LLC
|
|
Light to Medium Duty
|
|
|
|
|
|
|
|
|
|
|
|
|
12% Secured Debt (Maturity September 23, 2014)
|
|
Equipment Rental
|
|
|
317,647
|
|
|
|
322,261
|
|
|
|
322,261
|
|
Member Units (Fully diluted 6.9%)
|
|
|
|
|
|
|
|
|
688
|
|
|
|
688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
322,949
|
|
|
|
322,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Houston Plating & Coatings, LLC
|
|
Plating & Industrial Coating
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime plus 2% Secured Debt (Maturity July 19,
2011)
|
|
Services
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
100,000
|
|
Prime plus 2% Secured Debt (Maturity July 18,
2013)
|
|
|
|
|
200,000
|
|
|
|
200,000
|
|
|
|
200,000
|
|
Member Units(7) (Fully diluted 11.1%)
|
|
|
|
|
|
|
|
|
335,000
|
|
|
|
3,165,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
635,000
|
|
|
|
3,465,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indianapolis Aviation Partners, LLC
|
|
FBO / Aviation Support
|
|
|
|
|
|
|
|
|
|
|
|
|
12% Secured Debt (Maturity September 15, 2014)
|
|
Services
|
|
|
2,820,000
|
|
|
|
2,543,661
|
|
|
|
2,543,661
|
|
Warrants (Fully diluted 18.1%)
|
|
|
|
|
|
|
|
|
677,571
|
|
|
|
677,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,221,232
|
|
|
|
3,221,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
KBK Industries, LLC
|
|
Specialty Manufacturer of
|
|
|
|
|
|
|
|
|
|
|
|
|
14% Secured Debt (Maturity January 23, 2011)
|
|
Oilfield and Industrial
|
|
|
3,937,500
|
|
|
|
3,836,369
|
|
|
|
3,836,369
|
|
8% Secured Debt (Maturity March 1, 2010)
|
|
Products
|
|
|
187,500
|
|
|
|
187,500
|
|
|
|
187,500
|
|
8% Secured Debt (Maturity March 31, 2010)
|
|
|
|
|
450,000
|
|
|
|
450,000
|
|
|
|
450,000
|
|
Member Units(7) (Fully diluted 14.5%)
|
|
|
|
|
|
|
|
|
187,500
|
|
|
|
270,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,661,369
|
|
|
|
4,743,869
|
|
S-42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio Company/Type of Investment(1)(2)
|
|
Industry
|
|
Principal(6)
|
|
|
Cost(6)
|
|
|
Fair Value
|
|
|
Laurus Healthcare, LP
|
|
Healthcare Facilities / Services
|
|
|
|
|
|
|
|
|
|
|
|
|
13% Secured Debt (Maturity May 7, 2012)
|
|
|
|
|
2,275,000
|
|
|
|
2,275,000
|
|
|
|
2,275,000
|
|
Warrants (Fully diluted 17.5%)
|
|
|
|
|
|
|
|
|
105,000
|
|
|
|
4,400,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,380,000
|
|
|
|
6,675,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
National Trench Safety, LLC
|
|
Trench & Traffic Safety
|
|
|
|
|
|
|
|
|
|
|
|
|
10% PIK Debt (Maturity April 16, 2014)
|
|
Equipment
|
|
|
435,966
|
|
|
|
435,968
|
|
|
|
435,968
|
|
Member Units (Fully diluted 11.7%)
|
|
|
|
|
|
|
|
|
1,792,308
|
|
|
|
1,910,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,228,276
|
|
|
|
2,345,968
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Olympus Building Services, Inc.
|
|
Custodial/Facilities Services
|
|
|
|
|
|
|
|
|
|
|
|
|
12% Secured Debt (Maturity March 27, 2014)
|
|
|
|
|
1,890,000
|
|
|
|
1,720,176
|
|
|
|
1,830,000
|
|
Warrants (Fully diluted 13.5%)
|
|
|
|
|
|
|
|
|
150,000
|
|
|
|
400,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,870,176
|
|
|
|
2,230,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pulse Systems, LLC
|
|
Manufacturer of Components
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants (Fully diluted 7.4%)
|
|
for Medical Devices
|
|
|
|
|
|
|
132,856
|
|
|
|
450,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Schneider Sales Management, LLC
|
|
Sales Consulting and Training
|
|
|
|
|
|
|
|
|
|
|
|
|
13% Secured Debt (Maturity October 15, 2013)
|
|
|
|
|
1,980,000
|
|
|
|
1,925,206
|
|
|
|
1,925,206
|
|
Warrants (Fully diluted 12.0%)
|
|
|
|
|
|
|
|
|
45,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,970,206
|
|
|
|
1,925,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vision Interests, Inc.
|
|
Manufacturer/ Installer of
|
|
|
|
|
|
|
|
|
|
|
|
|
13% Secured Debt (Maturity June 5, 2012)
|
|
Commercial Signage
|
|
|
3,760,000
|
|
|
|
3,610,831
|
|
|
|
3,220,000
|
|
Common Stock (Fully diluted 8.9%)
|
|
|
|
|
|
|
|
|
372,000
|
|
|
|
|
|
Warrants (Fully diluted 11.2%)
|
|
|
|
|
|
|
|
|
160,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,142,831
|
|
|
|
3,220,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Walden Smokey Point, Inc.
|
|
Specialty Transportation/
|
|
|
|
|
|
|
|
|
|
|
|
|
14% current / 4% PIK Secured Debt (Maturity
|
|
Logistics
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30, 2013)
|
|
|
|
|
4,946,133
|
|
|
|
4,863,137
|
|
|
|
4,863,137
|
|
Common Stock (Fully diluted 7.6%)
|
|
|
|
|
|
|
|
|
600,000
|
|
|
|
900,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,463,137
|
|
|
|
5,763,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WorldCall, Inc.
|
|
Telecommunication/
|
|
|
|
|
|
|
|
|
|
|
|
|
13% Secured Debt (Maturity April 22, 2011)
|
|
Information Services
|
|
|
646,225
|
|
|
|
644,638
|
|
|
|
644,638
|
|
Common Stock (Fully diluted 9.9%)
|
|
|
|
|
|
|
|
|
296,631
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
941,269
|
|
|
|
744,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Affiliate Investments
|
|
|
|
|
|
|
|
|
41,746,184
|
|
|
|
44,822,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-43
MAIN
STREET CAPITAL CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS
September 30, 2009
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio Company/Type of Investment(1)(2)
|
|
Industry
|
|
Principal(6)
|
|
|
Cost(6)
|
|
|
Fair Value
|
|
|
Non-Control/Non-Affiliate Investments(5):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Audio Messaging Solutions, LLC
|
|
Audio Messaging Services
|
|
|
|
|
|
|
|
|
|
|
|
|
12% Secured Debt (Maturity May 8, 2014)
|
|
|
|
|
3,410,400
|
|
|
|
3,167,029
|
|
|
|
3,167,029
|
|
Warrants (Fully diluted 5.0%)
|
|
|
|
|
|
|
|
|
215,040
|
|
|
|
380,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,382,069
|
|
|
|
3,547,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East Teak Fine Hardwoods, Inc.
|
|
Hardwood Products
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock (Fully diluted 3.3%)
|
|
|
|
|
|
|
|
|
130,000
|
|
|
|
370,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hayden Acquisition, LLC
|
|
Manufacturer of Utility
|
|
|
|
|
|
|
|
|
|
|
|
|
8% Secured Debt (Maturity August 9, 2010)
|
|
Structures
|
|
|
1,800,000
|
|
|
|
1,781,303
|
|
|
|
360,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Support Systems Homes, Inc.
|
|
Manages Substance Abuse
|
|
|
|
|
|
|
|
|
|
|
|
|
15% Secured Debt (Maturity August 21, 2018)
|
|
Treatment Centers
|
|
|
226,461
|
|
|
|
226,461
|
|
|
|
226,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technical Innovations, LLC
|
|
Manufacturer of Specialty
|
|
|
|
|
|
|
|
|
|
|
|
|
7% Secured Debt (Maturity November 30, 2009)
|
|
Cutting Tools and Punches
|
|
|
1,060,000
|
|
|
|
1,059,411
|
|
|
|
1,059,411
|
|
13.5% Secured Debt (Maturity January 16, 2015)
|
|
|
|
|
3,350,000
|
|
|
|
3,307,580
|
|
|
|
3,351,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,366,991
|
|
|
|
4,410,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Non-Control/Non- Affiliate Investments
|
|
|
|
|
|
|
|
|
9,886,824
|
|
|
|
8,914,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Main Street Capital Partners, LLC (Investment Manager)
|
|
Asset Management
|
|
|
|
|
|
|
|
|
|
|
|
|
100% of Membership Interests
|
|
|
|
|
|
|
|
|
18,000,000
|
|
|
|
16,340,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Portfolio Investments, September 30, 2009
|
|
|
|
|
|
|
|
$
|
134,683,872
|
|
|
$
|
139,799,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable Securities and Idle Funds Investments
|
|
Investments in Secured Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
Barclays Capital High Yield Bond Fund
|
|
Investments, Certificates of
|
|
$
|
5,773,480
|
|
|
$
|
5,773,480
|
|
|
$
|
5,773,480
|
|
Western Refining Inc. Secured Term Loan 8.25%
|
|
Deposit, and Diversified
|
|
|
|
|
|
|
|
|
|
|
|
|
(Maturity May 30, 2014)
|
|
Bond Funds
|
|
|
1,790,126
|
|
|
|
1,741,516
|
|
|
|
1,741,516
|
|
Booz Allen Hamilton Inc. Secured Term Loan 7.5%
(Maturity July 31, 2015)
|
|
|
|
|
1,980,000
|
|
|
|
1,989,577
|
|
|
|
1,989,577
|
|
WM Wrigley Jr. Company Secured Term Loan 6.5%
(Maturity October 6, 2014)
|
|
|
|
|
3,898,735
|
|
|
|
3,921,421
|
|
|
|
3,921,421
|
|
Life Technologies Corporation Secured Term Loan 5.25%
(Maturity November 23, 2015)
|
|
|
|
|
2,389,447
|
|
|
|
2,395,278
|
|
|
|
2,395,278
|
|
Ashland Inc. Secured Term Loan 7.65% (Maturity
May 13, 2014)
|
|
|
|
|
1,917,948
|
|
|
|
1,958,023
|
|
|
|
1,958,023
|
|
Managed Healthcare Associates, Inc. Secured Term Loan 3.52%
(Maturity August 1, 2014)
|
|
|
|
|
2,000,000
|
|
|
|
1,441,465
|
|
|
|
1,600,000
|
|
Pharmanet Development Group, Inc. Secured Term Loan 10.0%
(Maturity May 29, 2014)
|
|
|
|
|
987,500
|
|
|
|
948,506
|
|
|
|
948,506
|
|
Pharmanet Development Group, Inc. Secured Revolving Loan 10.0%
(Maturity May 29, 2014)
|
|
|
|
|
5,415,000
|
|
|
|
5,147,669
|
|
|
|
5,147,669
|
|
Apria Healthcare Group Inc. Senior Secured Notes 11.25%
(Maturity November 1, 2014)
|
|
|
|
|
7,340,560
|
|
|
|
7,340,560
|
|
|
|
7,596,000
|
|
S-44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio Company/Type of Investment(1)(2)
|
|
Industry
|
|
Principal(6)
|
|
|
Cost(6)
|
|
|
Fair Value
|
|
|
1.65% Certificate of Deposit (Maturity
October 5, 2009)
|
|
|
|
|
2,500,000
|
|
|
|
2,500,000
|
|
|
|
2,500,000
|
|
1.50% Certificate of Deposit
(Maturity October 24, 2009)
|
|
|
|
|
2,500,000
|
|
|
|
2,500,000
|
|
|
|
2,500,000
|
|
1.65% Certificate of Deposit
(Maturity November 28, 2009)
|
|
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
Other Marketable Securities
|
|
|
|
|
1,289,000
|
|
|
|
840,762
|
|
|
|
840,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
39,498,257
|
|
|
$
|
39,912,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Debt investments are generally income producing. Equity and
warrants are non-income producing, unless otherwise noted. |
|
(2) |
|
See Note C for summary geographic location of portfolio
companies. |
|
(3) |
|
Controlled investments are defined by the Investment Company
Act of 1940, as amended (1940 Act) as investments in
which more than 25% of the voting securities are owned or where
the ability to nominate greater than 50% of the board
representation is maintained. |
|
(4) |
|
Affiliate investments are defined by the 1940 Act as
investments in which between 5% and 25% of the voting securities
are owned. |
|
(5) |
|
Non-Control/Non-Affiliate investments are defined by the 1940
Act as investments that are neither Control Investments nor
Affiliate Investments. |
|
(6) |
|
Principal is net of prepayments. Cost is net of prepayments
and accumulated unearned income. |
|
(7) |
|
Income producing through payment of dividends or
distributions. |
|
(8) |
|
Subject to contractual minimum interest rates. |
S-45
MAIN
STREET CAPITAL CORPORATION
CONSOLIDATED
SCHEDULE OF INVESTMENTS
December 31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio Company/Type of Investment(1)(2)
|
|
Industry
|
|
Principal(6)
|
|
|
Cost(6)
|
|
|
Fair Value
|
|
|
Control Investments(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Café Brazil, LLC
|
|
Casual Restaurant Group
|
|
|
|
|
|
|
|
|
|
|
|
|
12% Secured Debt (Maturity April 20, 2011)
|
|
|
|
$
|
2,750,000
|
|
|
$
|
2,728,113
|
|
|
$
|
2,750,000
|
|
Member Units(7) (Fully diluted 42.3%)
|
|
|
|
|
|
|
|
|
41,837
|
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,769,950
|
|
|
|
3,750,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CBT Nuggets, LLC
|
|
Produces and Sells
|
|
|
|
|
|
|
|
|
|
|
|
|
14% Secured Debt (Maturity June 1, 2011)
|
|
IT Certification
|
|
|
1,680,000
|
|
|
|
1,642,518
|
|
|
|
1,680,000
|
|
10% Secured Debt (Maturity December 31, 2009)
|
|
Training Videos
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
150,000
|
|
Member Units(7) (Fully diluted 29.1%)
|
|
|
|
|
|
|
|
|
432,000
|
|
|
|
1,625,000
|
|
Warrants (Fully diluted 10.5%)
|
|
|
|
|
|
|
|
|
72,000
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,296,518
|
|
|
|
3,955,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ceres Management, LLC (Lambs)
|
|
Aftermarket Automotive
|
|
|
|
|
|
|
|
|
|
|
|
|
14% Secured Debt (Maturity May 31, 2013)
|
|
Services Chain
|
|
|
2,400,000
|
|
|
|
2,372,601
|
|
|
|
2,372,601
|
|
Member Units (Fully diluted 42.0%)
|
|
|
|
|
|
|
|
|
1,200,000
|
|
|
|
1,300,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,572,601
|
|
|
|
3,672,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condit Exhibits, LLC
|
|
Tradeshow Exhibits/
|
|
|
|
|
|
|
|
|
|
|
|
|
13% current / 5% PIK Secured Debt (Maturity
July 1, 2013)
|
|
Custom Displays
|
|
|
2,308,073
|
|
|
|
2,273,194
|
|
|
|
2,273,194
|
|
Warrants (Fully diluted 28.1%)
|
|
|
|
|
|
|
|
|
300,000
|
|
|
|
300,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,573,194
|
|
|
|
2,573,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gulf Manufacturing, LLC
|
|
Industrial Metal Fabrication
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime plus 1% Secured Debt (Maturity August 31,
2012)
|
|
|
|
|
1,200,000
|
|
|
|
1,190,764
|
|
|
|
1,200,000
|
|
13% Secured Debt (Maturity August 31, 2012)
|
|
|
|
|
1,900,000
|
|
|
|
1,747,777
|
|
|
|
1,880,000
|
|
Member Units(7) (Fully diluted 18.6%)
|
|
|
|
|
|
|
|
|
472,000
|
|
|
|
1,100,000
|
|
Warrants (Fully diluted 8.4%)
|
|
|
|
|
|
|
|
|
160,000
|
|
|
|
550,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,570,541
|
|
|
|
4,730,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hawthorne Customs & Dispatch Services, LLC
|
|
Transportation/Logistics
|
|
|
|
|
|
|
|
|
|
|
|
|
13% Secured Debt (Maturity January 31, 2011)
|
|
|
|
|
1,200,000
|
|
|
|
1,171,988
|
|
|
|
1,171,988
|
|
Member Units(7) (Fully diluted 27.8%)
|
|
|
|
|
|
|
|
|
375,000
|
|
|
|
435,000
|
|
Warrants (Fully diluted 16.5%)
|
|
|
|
|
|
|
|
|
37,500
|
|
|
|
230,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,584,488
|
|
|
|
1,836,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hydratec Holdings, LLC
|
|
Agricultural Services
|
|
|
|
|
|
|
|
|
|
|
|
|
12.5% Secured Debt (Maturity October 31, 2012)
|
|
|
|
|
5,400,000
|
|
|
|
5,311,329
|
|
|
|
5,311,329
|
|
Prime plus 1% Secured Debt (Maturity
October 31, 2012)
|
|
|
|
|
1,595,244
|
|
|
|
1,579,911
|
|
|
|
1,579,911
|
|
Member Units (Fully diluted 60%)
|
|
|
|
|
|
|
|
|
1,800,000
|
|
|
|
2,050,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,691,240
|
|
|
|
8,941,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jensen Jewelers of Idaho, LLC
|
|
Retail Jewelry
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime Plus 2% Secured Debt (Maturity
November 14, 2011)
|
|
|
|
|
1,044,000
|
|
|
|
1,030,957
|
|
|
|
1,044,000
|
|
13% current / 6% PIK Secured Debt (Maturity
November 14, 2011)
|
|
|
|
|
1,004,591
|
|
|
|
986,980
|
|
|
|
1,004,591
|
|
Member Units(7) (Fully diluted 24.3%)
|
|
|
|
|
|
|
|
|
376,000
|
|
|
|
380,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,393,937
|
|
|
|
2,428,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NAPCO Precast, LLC
|
|
Precast Concrete Manufacturing
|
|
|
|
|
|
|
|
|
|
|
|
|
18% Secured Debt (Maturity February 1, 2013)
|
|
|
|
|
6,461,538
|
|
|
|
6,348,011
|
|
|
|
6,461,538
|
|
Prime Plus 2% Secured Debt (Maturity
February 1, 2013)(8)
|
|
|
|
|
3,692,308
|
|
|
|
3,660,945
|
|
|
|
3,692,308
|
|
Member Units(7) (Fully diluted 36.1%)
|
|
|
|
|
|
|
|
|
2,000,000
|
|
|
|
5,100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,008,956
|
|
|
|
15,253,846
|
|
S-46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio Company/Type of Investment(1)(2)
|
|
Industry
|
|
Principal(6)
|
|
|
Cost(6)
|
|
|
Fair Value
|
|
|
OMi Holdings, Inc.
|
|
Manufacturer of
|
|
|
|
|
|
|
|
|
|
|
|
|
12% Secured Debt (Maturity April 1, 2013)
|
|
Overhead Cranes
|
|
|
6,660,000
|
|
|
|
6,603,400
|
|
|
|
6,603,400
|
|
Common Stock (Fully diluted 28.8%)
|
|
|
|
|
|
|
|
|
900,000
|
|
|
|
570,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,503,400
|
|
|
|
7,173,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quest Design & Production, LLC
|
|
Design and Fabrication
|
|
|
|
|
|
|
|
|
|
|
|
|
10% Secured Debt (Maturity June 30, 2013)
|
|
of Custom Display Systems
|
|
|
600,000
|
|
|
|
465,060
|
|
|
|
600,000
|
|
0% Secured Debt (Maturity June 30, 2013)
|
|
|
|
|
2,000,000
|
|
|
|
2,000,000
|
|
|
|
1,400,000
|
|
Warrants (Fully diluted 40.0%)
|
|
|
|
|
|
|
|
|
1,595,858
|
|
|
|
|
|
Warrants (Fully diluted 20.0%)
|
|
|
|
|
|
|
|
|
40,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,100,918
|
|
|
|
2,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Universal Scaffolding & Equipment, LLC
|
|
Manufacturer of Scaffolding
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime plus 1% Secured Debt (Maturity August 17,
2012)(8)
|
|
and Shoring Equipment
|
|
|
881,833
|
|
|
|
875,072
|
|
|
|
875,072
|
|
13% current / 5% PIK Secured Debt (Maturity
August 17, 2012)
|
|
|
|
|
3,362,698
|
|
|
|
3,311,508
|
|
|
|
3,160,000
|
|
Member Units (Fully diluted 18.4%)
|
|
|
|
|
|
|
|
|
992,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,178,643
|
|
|
|
4,035,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Uvalco Supply, LLC
|
|
Farm and Ranch Supply
|
|
|
|
|
|
|
|
|
|
|
|
|
Member Units (Fully diluted 39.6%)
|
|
|
|
|
|
|
|
|
905,743
|
|
|
|
1,575,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zieglers NYPD, LLC
|
|
Casual Restaurant Group
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime plus 2% Secured Debt (Maturity October 1,
2013)(8)
|
|
|
|
|
600,000
|
|
|
|
594,239
|
|
|
|
594,239
|
|
13% current / 5% PIK Secured Debt (Maturity
October 1, 2013)
|
|
|
|
|
2,704,262
|
|
|
|
2,663,437
|
|
|
|
2,663,437
|
|
Warrants (Fully diluted 28.6%)
|
|
|
|
|
|
|
|
|
360,000
|
|
|
|
360,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,617,676
|
|
|
|
3,617,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Control Investments
|
|
|
|
|
|
|
|
|
60,767,805
|
|
|
|
65,542,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-47
MAIN
STREET CAPITAL CORPORATION
CONSOLIDATED
SCHEDULE OF INVESTMENTS
December 31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio Company/Type of Investment(1)(2)
|
|
Industry
|
|
Principal(6)
|
|
|
Cost(6)
|
|
|
Fair Value
|
|
|
Affiliate Investments(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advantage Millwork Company, Inc.
|
|
Manufacturer/Distributor
|
|
|
|
|
|
|
|
|
|
|
|
|
12% Secured Debt (Maturity February 5, 2012)
|
|
of Wood Doors
|
|
|
3,066,667
|
|
|
|
2,955,442
|
|
|
|
2,955,442
|
|
Warrants (Fully diluted 12.2%)
|
|
|
|
|
|
|
|
|
97,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American Sensor Technologies, Inc.
|
|
Manufacturer of Commercial/
|
|
|
|
|
|
|
3,053,250
|
|
|
|
2,955,442
|
|
Prime plus 0.5% Secured Debt (Maturity
May 31, 2010)(8)
|
|
Industrial Sensors
|
|
|
3,800,000
|
|
|
|
3,800,000
|
|
|
|
3,800,000
|
|
Warrants (Fully diluted 20.0%)
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,850,000
|
|
|
|
4,050,000
|
|
Carlton Global Resources, LLC
|
|
Processor of
|
|
|
|
|
|
|
|
|
|
|
|
|
13% PIK Secured Debt (Maturity November 15, 2011)
|
|
Industrial Minerals
|
|
|
4,791,944
|
|
|
|
4,655,836
|
|
|
|
|
|
Member Units (Fully diluted 8.5%)
|
|
|
|
|
|
|
|
|
400,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,055,836
|
|
|
|
|
|
California Healthcare Medical Billing, Inc.
|
|
Healthcare
|
|
|
|
|
|
|
|
|
|
|
|
|
12% Secured Debt (Maturity October 17, 2013)
|
|
Services
|
|
|
1,410,000
|
|
|
|
1,141,706
|
|
|
|
1,141,706
|
|
Common Stock (Fully diluted 6%)
|
|
|
|
|
|
|
|
|
390,000
|
|
|
|
390,000
|
|
Warrants (Fully diluted 12%)
|
|
|
|
|
|
|
|
|
240,000
|
|
|
|
240,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Houston Plating & Coatings, LLC
|
|
Plating & Industrial
|
|
|
|
|
|
|
1,771,706
|
|
|
|
1,771,706
|
|
Prime plus 2% Secured Debt (Maturity July 18, 2013)
|
|
Coating Services
|
|
|
300,000
|
|
|
|
300,000
|
|
|
|
300,000
|
|
Member Units(7) (Fully diluted 11.1%)
|
|
|
|
|
|
|
|
|
210,000
|
|
|
|
2,750,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
KBK Industries, LLC
|
|
Specialty Manufacturer
|
|
|
|
|
|
|
510,000
|
|
|
|
3,050,000
|
|
14% Secured Debt (Maturity January 23, 2011)
|
|
of Oilfield and
|
|
|
3,937,500
|
|
|
|
3,787,758
|
|
|
|
3,937,500
|
|
8% Secured Debt (Maturity March 1, 2010)
|
|
Industrial Products
|
|
|
468,750
|
|
|
|
468,750
|
|
|
|
468,750
|
|
8% Secured Debt (Maturity March 31, 2009)
|
|
|
|
|
450,000
|
|
|
|
450,000
|
|
|
|
450,000
|
|
Member Units(7) (Fully diluted 14.5%)
|
|
|
|
|
|
|
|
|
187,500
|
|
|
|
775,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Laurus Healthcare, LP
|
|
Healthcare Facilities
|
|
|
|
|
|
|
4,894,008
|
|
|
|
5,631,250
|
|
13% Secured Debt (Maturity May 7, 2009)
|
|
|
2,275,000
|
|
|
|
2,259,664
|
|
|
|
2,275,000
|
|
Warrants (Fully diluted 17.5%)
|
|
|
|
|
|
|
|
|
105,000
|
|
|
|
2,500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
National Trench Safety, LLC
|
|
Trench & Traffic
|
|
|
|
|
|
|
2,364,664
|
|
|
|
4,775,000
|
|
10% PIK Debt (Maturity April 16, 2014)
|
|
Safety Equipment
|
|
|
404,256
|
|
|
|
404,256
|
|
|
|
404,256
|
|
Member Units (Fully diluted 11.7%)
|
|
|
|
|
|
|
|
|
1,792,308
|
|
|
|
1,792,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pulse Systems, LLC
|
|
Manufacturer of
|
|
|
|
|
|
|
2,196,564
|
|
|
|
2,196,564
|
|
14% Secured Debt (Maturity June 1, 2009)
|
|
Components for
|
|
|
1,831,274
|
|
|
|
1,819,464
|
|
|
|
1,831,274
|
|
Warrants (Fully diluted 7.4%)
|
|
Medical Devices
|
|
|
|
|
|
|
132,856
|
|
|
|
450,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Schneider Sales Management, LLC
|
|
Sales Consulting
|
|
|
|
|
|
|
1,952,320
|
|
|
|
2,281,274
|
|
13% Secured Debt (Maturity October 15, 2013)
|
|
and Training
|
|
|
1,980,000
|
|
|
|
1,909,972
|
|
|
|
1,909,972
|
|
Warrants (Fully diluted 12.0%)
|
|
|
|
|
|
|
|
|
45,000
|
|
|
|
45,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vision Interests, Inc.
|
|
Manufacturer/
|
|
|
|
|
|
|
1,954,972
|
|
|
|
1,954,972
|
|
13% Secured Debt (Maturity June 5, 2012)
|
|
Installer of Commercial
|
|
|
3,760,000
|
|
|
|
3,579,117
|
|
|
|
3,579,117
|
|
Common Stock (Fully diluted 8.9%)
|
|
Signage
|
|
|
|
|
|
|
372,000
|
|
|
|
420,000
|
|
Warrants (Fully diluted 11.2%)
|
|
|
|
|
|
|
|
|
160,000
|
|
|
|
420,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,111,117
|
|
|
|
4,419,117
|
|
Walden Smokey Point, Inc.
|
|
Specialty Transportation/
|
|
|
|
|
|
|
|
|
|
|
|
|
14% current / 4% PIK Secured Debt (Maturity
December 30, 2013)
|
|
Logistics
|
|
|
4,800,533
|
|
|
|
4,704,533
|
|
|
|
4,704,533
|
|
Common Stock (Fully diluted 7.6%)
|
|
|
|
|
|
|
|
|
600,000
|
|
|
|
600,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,304,533
|
|
|
|
5,304,533
|
|
WorldCall, Inc.
|
|
Telecommunication/
|
|
|
|
|
|
|
|
|
|
|
|
|
13% Secured Debt (Maturity October 22, 2009)
|
|
Information Services
|
|
|
646,225
|
|
|
|
631,199
|
|
|
|
640,000
|
|
Common Stock (Fully diluted 9.9%)
|
|
|
|
|
|
|
|
|
296,631
|
|
|
|
382,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
927,830
|
|
|
|
1,022,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Affiliate Investments
|
|
|
|
|
|
|
|
|
37,946,800
|
|
|
|
39,412,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-48
MAIN
STREET CAPITAL CORPORATION
CONSOLIDATED
SCHEDULE OF INVESTMENTS
December 31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio Company/Type of Investment(1)(2)
|
|
Industry
|
|
Principal(6)
|
|
|
Cost(6)
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Control/Non-Affiliate Investments(5):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East Teak Fine Hardwoods, Inc.
|
|
Hardwood Products
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock (Fully diluted 3.3%)
|
|
|
|
|
|
|
|
|
130,000
|
|
|
|
490,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hayden Acquisition, LLC
|
|
Manufacturer of
|
|
|
|
|
|
|
|
|
|
|
|
|
8% Secured Debt (Maturity March 9, 2009)
|
|
Utility Structures
|
|
|
1,800,000
|
|
|
|
1,781,303
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Support Systems Homes, Inc.
|
|
Manages Substance
|
|
|
|
|
|
|
|
|
|
|
|
|
15% Secured Debt (Maturity August 21, 2018)
|
|
Abuse Treatment Centers
|
|
|
226,589
|
|
|
|
226,589
|
|
|
|
226,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technical Innovations, LLC
|
|
Manufacturer of Specialty
|
|
|
|
|
|
|
|
|
|
|
|
|
7% Secured Debt (Maturity August 31, 2009)
|
|
Cutting Tools and Punches
|
|
|
416,364
|
|
|
|
409,297
|
|
|
|
409,297
|
|
13.5% Secured Debt (Maturity January 16, 2015)
|
|
|
|
|
3,750,000
|
|
|
|
3,698,216
|
|
|
|
3,750,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,107,513
|
|
|
|
4,159,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Non-Control/Non- Affiliate Investments
|
|
|
|
|
|
|
|
|
6,245,405
|
|
|
|
5,375,886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Main Street Capital Partners, LLC (Investment Manager)
|
|
Asset Management
|
|
|
|
|
|
|
|
|
|
|
|
|
100% of Membership Interests
|
|
|
|
|
|
|
|
|
18,000,000
|
|
|
|
16,675,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Portfolio Investments, December 31, 2008
|
|
|
|
|
|
|
|
$
|
122,960,010
|
|
|
$
|
127,006,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Idle Funds Investments
|
|
Investments in
|
|
|
|
|
|
|
|
|
|
|
|
|
8.3% General Electric Capital Corporate Bond
|
|
Debt Investments and
|
|
|
|
|
|
|
|
|
|
|
|
|
(Maturity September 20, 2009)
|
|
Diversified Bond Funds
|
|
$
|
1,218,704
|
|
|
$
|
1,218,704
|
|
|
$
|
1,218,704
|
|
4.50% National City Bank Bond (Maturity March 15,
2010)
|
|
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
Vanguard High-Yield Corp Fund Admiral Shares
|
|
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
1,086,514
|
|
Vanguard Long-Term Investment-Grade Fund Admiral Shares
|
|
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
1,084,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,218,704
|
|
|
$
|
4,389,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Debt investments are generally income producing. Equity and
warrants are non-income producing, unless otherwise noted. |
|
(2) |
|
See Note C for summary geographic location of portfolio
companies. |
|
(3) |
|
Controlled investments are defined by the Investment Company
Act of 1940, as amended (1940 Act), as investments
in which more than 25% of the voting securities are owned or
where the ability to nominate greater than 50% of the board
representation is maintained. |
|
(4) |
|
Affiliate investments are defined by the 1940 Act as
investments in which between 5% and 25% of the voting securities
are owned. |
|
(5) |
|
Non-Control/Non-Affiliate investments are defined by the 1940
Act as investments that are neither Control Investments nor
Affiliate Investments. |
|
(6) |
|
Principal is net of prepayments. Cost is net of prepayments
and accumulated unearned income. |
|
(7) |
|
Income producing through payment of dividends or
distributions. |
|
(8) |
|
Subject to contractual minimum interest rates. |
S-49
MAIN
STREET CAPITAL CORPORATION
Notes to
Consolidated Financial Statements
(Unaudited)
NOTE A
ORGANIZATION AND BASIS OF PRESENTATION
Main Street Capital Corporation (MSCC) was formed on
March 9, 2007 for the purpose of (i) acquiring 100% of
the equity interests of Main Street Mezzanine Fund, LP (the
Fund) and its general partner, Main Street Mezzanine
Management, LLC (the General Partner),
(ii) acquiring 100% of the equity interests of Main Street
Capital Partners, LLC (the Investment Manager),
(iii) raising capital in an initial public offering, which
was completed in October 2007 (the IPO), and
(iv) thereafter operating as an internally managed business
development company (BDC) under the Investment
Company Act of 1940, as amended (the 1940 Act). The
transactions discussed above were consummated in October 2007
and are collectively termed the Formation
Transactions. The term Main Street refers to
the Fund and the General Partner prior to the IPO and to MSCC
and its subsidiaries, including the Fund and the General
Partner, subsequent to the IPO.
Immediately following the Formation Transactions, Main Street
Equity Interests, Inc. (MSEI) was formed as a wholly
owned consolidated subsidiary of MSCC. MSEI has elected for tax
purposes to be treated as a taxable entity and is taxed at
normal corporate tax rates based on its taxable income.
Main Streets financial statements are prepared in
accordance with U.S. generally accepted accounting
principles (U.S. GAAP). For the three and nine
months ended September 30, 2009 and 2008, the consolidated
financial statements of Main Street include the accounts of
MSCC, the Fund, MSEI and the General Partner. The Investment
Manager is accounted for as a portfolio investment (see
Note D). Marketable securities and idle funds
investments are classified as financial instruments and
are reported separately on Main Streets Consolidated
Balance Sheets and Consolidated Schedule of Investments due to
the nature of such investments (See Note B.9). To allow for
more relevant disclosure of Main Streets core
investment portfolio, core portfolio investments, as
used herein, refers to all of Main Streets portfolio
investments excluding the Investment Manager and all
Marketable securities and idle funds investments.
Main Streets results of operations for the three and nine
months ended September 30, 2009 and 2008, and cash flows
for the nine months ended September 30, 2009 and 2008, and
financial position as of September 30, 2009 and
December 31, 2008, are presented on a consolidated basis.
The effects of all intercompany transactions between Main Street
and its subsidiaries have been eliminated in consolidation.
Certain reclassifications have been made to prior period
balances to conform with the current financial statement
presentation, including the reclassification of MSCC shares of
common stock repurchased under Main Streets share
repurchase plan, which were formerly classified as treasury
stock and are now reflected as a reduction of common stock and
additional paid in capital in accordance with Maryland law.
The accompanying unaudited consolidated financial statements of
Main Street are presented in conformity with U.S. GAAP for
interim financial information and pursuant to the requirements
for reporting on
Form 10-Q
and Article 10 of
Regulation S-X.
Accordingly, certain disclosures accompanying annual financial
statements prepared in accordance with U.S. GAAP are
omitted. In the opinion of management, the unaudited
consolidated financial results included herein contain all
adjustments, consisting solely of normal recurring accruals,
considered necessary for the fair presentation of financial
statements for the interim periods included herein. The results
of operations for the three and nine months ended
September 30, 2009 are not necessarily indicative of the
operating results to be expected for the full year. Also, the
unaudited financial statements and notes should be read in
conjunction with the audited financial statements and notes
thereto for the year ended December 31, 2008. Financial
statements prepared on a U.S. GAAP basis require management
to make estimates and assumptions that affect the amounts and
disclosures reported in the financial statements and
S-50
MAIN
STREET CAPITAL CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
accompanying notes. Such estimates and assumptions could change
in the future as more information becomes known, which could
impact the amounts reported and disclosed herein.
Under the investment company rules and regulations pursuant to
Article 6 of
Regulation S-X
and the Audit and Accounting Guide for Investment Companies
issued by the American Institute of Certified Public Accountants
(the AICPA Guide), Main Street is precluded from
consolidating portfolio company investments, including those in
which it has a controlling interest, unless the portfolio
company is another investment company. An exception to this
general principle in the AICPA Guide occurs if Main Street owns
a controlled operating company that provides all or
substantially all of its services directly to Main Street or to
an investment company of Main Street. None of the investments
made by Main Street qualify for this exception. Therefore, Main
Streets portfolio investments are carried on the balance
sheet at fair value, as discussed further in Note B, with
any adjustments to fair value recognized as Net Change in
Unrealized Appreciation (Depreciation) from Investments on
the Statement of Operations until the investment is disposed of,
resulting in any gain or loss on exit being recognized as a
Net Realized Gain (Loss) from Investments.
Portfolio
Investment Classification
Main Street classifies its portfolio investments in accordance
with the requirements of the 1940 Act. Under the 1940 Act,
Control Investments are defined as investments in
which Main Street owns more than 25% of the voting securities or
has rights to maintain greater than 50% of the board
representation. Under the 1940 Act, Affiliate
Investments are defined as investments in which Main
Street owns between 5% and 25% of the voting securities. Under
the 1940 Act, Non-Control/Non-Affiliate Investments
are defined as investments that are neither Control investments
nor Affiliate investments. The Investment in affiliated
Investment Manager represents Main Streets
investment in a wholly owned investment manager subsidiary that
is accounted for as a portfolio investment.
NOTE B
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
|
1.
|
Valuation
of Portfolio Investments
|
Main Street accounts for its core portfolio investments and the
Investment Manager at fair value. As a result, Main Street
adopted the provisions of the Financial Accounting Standards
Board (FASB) Accounting Standards Codification
(Codification or ASC) 820, Fair Value
Measurements and Disclosures, in the first quarter of 2008.
ASC 820 defines fair value, establishes a framework for
measuring fair value, establishes a fair value hierarchy based
on the quality of inputs used to measure fair value and enhances
disclosure requirements for fair value measurements. ASC 820
requires Main Street to assume that the portfolio investment is
to be sold in the principal market to independent market
participants, or in the absence of a principal market, in the
most advantageous market, which may be a hypothetical market.
Market participants are defined as buyers and sellers in the
principal or most advantageous market that are independent,
knowledgeable, and willing and able to transact. With the
adoption of this statement, Main Street incorporated the income
approach to estimate the fair value of its core portfolio debt
investments principally using a
yield-to-maturity
model. Prior to the adoption of ASC 820, Main Street reported
unearned income as a single line item on the consolidated
balance sheets and consolidated schedule of investments.
Unearned income is no longer reported as a separate line item
and is now part of the investment portfolio cost and fair value
on the consolidated balance sheets and the consolidated schedule
of investments. This change in presentation had no impact on the
overall net cost or fair value of Main Streets investment
portfolio and had no impact on Main Streets financial
position or results of operations.
Main Streets core business plan calls for it to invest
primarily in illiquid securities issued by private companies.
These core investments may be subject to restrictions on resale
and will generally have no established trading market. As a
result, Main Street determines in good faith the fair value of
its portfolio investments pursuant to a valuation policy in
accordance with ASC 820 and a valuation process approved by its
Board of Directors and in accordance with the 1940 Act. Main
Street reviews external events, including
S-51
MAIN
STREET CAPITAL CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
private mergers, sales and acquisitions involving comparable
companies, and includes these events in the valuation process.
Main Streets valuation policy and process are intended to
provide a consistent basis for determining the fair value of the
portfolio.
For valuation purposes, control investments are composed of
equity and debt securities for which Main Street has a
controlling interest in the portfolio company or has the ability
to nominate a majority of the portfolio companys board of
directors. Market quotations are generally not readily available
for Main Streets control investments. As a result, Main
Street determines the fair value of control investments using a
combination of market and income approaches. Under the market
approach, Main Street will typically use the enterprise value
methodology to determine the fair value of these investments.
The enterprise value is the fair value at which an enterprise
could be sold in a transaction between two willing parties,
other than through a forced or liquidation sale. Typically,
private companies are bought and sold based on multiples of
earnings before interest, taxes, depreciation and amortization,
or EBITDA, cash flows, net income, revenues, or in limited
cases, book value. There is no single methodology for estimating
enterprise value. For any one portfolio company, enterprise
value is generally described as a range of values from which a
single estimate of enterprise value is derived. In estimating
the enterprise value of a portfolio company, Main Street
analyzes various factors, including the portfolio companys
historical and projected financial results. Main Street
allocates the enterprise value to investments in order of the
legal priority of the investments. Main Street will also use the
income approach to determine the fair value of these securities,
based on projections of the discounted future free cash flows
that the portfolio company or the debt security will likely
generate. The valuation approaches for Main Streets
control investments estimate the value of the investment if it
were to sell, or exit, the investment, assuming the highest and
best use of the investment by market participants. In addition,
these valuation approaches consider the value associated with
Main Streets ability to control the capital structure of
the portfolio company, as well as the timing of a potential exit.
For valuation purposes, non-control investments are composed of
debt and equity securities for which Main Street does not have a
controlling interest in the portfolio company, or the ability to
nominate a majority of the portfolio companys board of
directors. Market quotations for Main Streets non-control
investments are generally not readily available. For Main
Streets non-control investments, Main Street uses a
combination of market and income approaches to value its equity
investments and the income approach to value its debt
instruments. For non-control debt investments, Main Street
determines the fair value primarily using a yield approach that
analyzes the discounted cash flows of interest and principal for
the debt security, as set forth in the associated loan
agreements, as well as the financial position and credit risk of
each of these portfolio investments. Main Streets estimate
of the expected repayment date of a debt security is generally
the legal maturity date of the instrument, as Main Street
generally intends to hold its loans to maturity. The yield
analysis considers changes in leverage levels, credit quality,
portfolio company performance and other factors. Main Street
will use the value determined by the yield analysis as the fair
value for that security; however, because of Main Streets
general intent to hold its loans to maturity, the fair value
will not exceed the face amount of the debt security. A change
in the assumptions that Main Street uses to estimate the fair
value of its debt securities using the yield analysis could have
a material impact on the determination of fair value. If there
is deterioration in credit quality or a debt security is in
workout status, Main Street may consider other factors in
determining the fair value of a debt security, including the
value attributable to the debt security from the enterprise
value of the portfolio company or the proceeds that would be
received in a liquidation analysis.
Due to the inherent uncertainty in the valuation process, Main
Streets estimate of fair value may differ materially from
the values that would have been used had a ready market for the
securities existed. In addition, changes in the market
environment, portfolio company performance and other events that
may occur over the lives of the investments may cause the gains
or losses ultimately realized on these investments to be
materially different than the valuations currently assigned.
Main Street determines the fair value of each individual
investment and records changes in fair value as unrealized
appreciation or depreciation.
S-52
MAIN
STREET CAPITAL CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
Main Street uses a standard investment rating system in
connection with its investment oversight, portfolio
management/analysis and investment valuation procedures. This
system takes into account both quantitative and qualitative
factors of the portfolio company and the investments held. Each
quarter, Main Street estimates the fair value of each portfolio
investment, and the Board of Directors of Main Street oversees,
reviews and approves, in good faith, Main Streets fair
value estimates consistent with the 1940 Act requirements.
Pursuant to its internal valuation process, Main Street performs
valuation procedures on each portfolio company once a quarter.
In addition to its internal valuation process, in arriving at
estimates of fair value for portfolio companies, Main Street,
among other things, consults with a nationally recognized
independent advisor. The nationally recognized independent
advisor is generally consulted relative to each portfolio
investment at least once in every calendar year, and for new
portfolio companies, at least once in the twelve-month period
subsequent to the initial investment. In certain instances, Main
Street may determine that it is not cost-effective, and as a
result is not in its stockholders best interest, to
consult with the nationally recognized independent advisor on
one or more portfolio companies. Such instances include, but are
not limited to, situations where the fair value of Main
Streets investment in a portfolio company is determined to
be insignificant relative to the total investment portfolio.
Main Street consulted with its independent advisor in arriving
at Main Streets determination of fair value on a total of
19 portfolio companies for the nine months ended
September 30, 2009, representing approximately 50% of the
total portfolio investments at fair value as of
September 30, 2009. Main Street consulted with its advisor
relative to Main Streets determination of fair value on 4,
9, and 6 portfolio investments for the quarters ended
March 31, June 30, and September 30 2009,
respectively. The Board of Directors of Main Street has the
final responsibility for reviewing and approving, in good faith,
Main Streets estimate of the fair value for the
investments.
Main Street believes its investments as of September 30,
2009 and December 31, 2008 approximate fair value as of
those dates based on the market in which Main Street operates
and other conditions in existence at those reporting periods.
|
|
2.
|
Interest
and Dividend Income
|
Interest and dividend income is recorded on the accrual basis to
the extent amounts are expected to be collected. Dividend income
is recorded as dividends are declared or at the point an
obligation exists for the portfolio company to make a
distribution. In accordance with Main Streets valuation
policy, accrued interest and dividend income is evaluated
periodically for collectability. When a loan or debt security
becomes 90 days or more past due, and if Main Street
otherwise does not expect the debtor to be able to service all
of its debt or other obligations, Main Street will generally
place the loan or debt security on non-accrual status and cease
recognizing interest income on that loan or debt security until
the borrower has demonstrated the ability and intent to pay
contractual amounts due. If a loan or debt securitys
status significantly improves regarding ability to service the
debt or other obligations, or if a loan or debt security is
fully impaired or written off, it will be removed from
non-accrual status.
While not significant to its total core portfolio, Main Street
holds debt instruments in its core investment portfolio that
contain
payment-in-kind
(PIK) interest provisions. The PIK interest,
computed at the contractual rate specified in each debt
agreement, is added to the principal balance of the debt and is
recorded as interest income. Thus, the actual collection of this
interest may be deferred until the time of debt principal
repayment. To maintain regulated investment company
(RIC) tax treatment (as discussed below), this
non-cash source of income will need to be paid out to
stockholders in the form of distributions, even though Main
Street may not have collected the PIK interest in cash.
As of September 30, 2009, Main Street had three investments
on non-accrual status, which comprised approximately 2.6% of the
core investment portfolio at fair value. At December 31,
2008, Main Street had one
S-53
MAIN
STREET CAPITAL CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
investment on non-accrual status, which comprised approximately
0.5% of the core investment portfolio at fair value.
|
|
3.
|
Fee
Income Structuring and Advisory
Services
|
Main Street may periodically provide services, including
structuring and advisory services, to its portfolio companies.
For services that are separately identifiable and evidence
exists to substantiate fair value, income is recognized as
earned, which is generally when the investment or other
applicable transaction closes. Fees received in connection with
debt financing transactions for services that do not meet these
criteria are treated as debt origination fees and are accreted
into interest income over the life of the financing.
|
|
4.
|
Unearned
Income Debt Origination Fees and Original Issue
Discount
|
Main Street capitalizes upfront debt origination fees received
in connection with financings and reflects such fees as unearned
income netted against investments. Main Street will also
capitalize and offset direct loan origination costs against the
origination fees received. The unearned income from the fees,
net of direct debt origination costs, is accreted into interest
income based on the effective interest method over the life of
the financing.
In connection with its core portfolio debt investments, Main
Street sometimes receives nominal cost warrants (nominal
cost equity) that are valued as part of the negotiation
process with the particular portfolio company. When Main Street
receives nominal cost equity, Main Street allocates its cost
basis in its investment between its debt securities and its
nominal cost equity at the time of origination. Any resulting
discount from recording the debt is reflected as unearned
income, which is netted against the investment, and accreted
into interest income based on the effective interest method over
the life of the debt.
|
|
5.
|
Share-Based
Compensation
|
Main Street accounts for its share-based compensation plans
using the fair value method, as prescribed by ASC 718,
Compensation Stock Compensation. Accordingly,
for restricted stock awards, Main Street measures the grant date
fair value based upon the market price of its common stock on
the date of the grant and amortizes that fair value as
share-based compensation expense over the requisite service
period or vesting term.
MSCC has elected and intends to qualify for the tax treatment
applicable to a RIC under Subchapter M of the Internal Revenue
Code of 1986, as amended (the Code), and, among
other things, intends to make the required distributions to its
stockholders as specified therein. In order to qualify as a RIC,
MSCC is required to timely distribute to its stockholders at
least 90% of investment company taxable income, as defined by
the Code, each year. Depending on the level of taxable income
earned in a tax year, MSCC may choose to carry forward taxable
income in excess of current year distributions into the next tax
year and pay a 4% excise tax on such income. Any such carryover
taxable income must be distributed through a dividend declared
prior to filing the final tax return related to the year which
generated such taxable income.
MSCCs wholly owned subsidiary, MSEI, is a taxable entity
which holds certain core portfolio investments of Main Street.
MSEI is consolidated for U.S. GAAP reporting purposes, and
the core portfolio investments held by MSEI are included in Main
Streets consolidated financial statements. The principal
purpose of MSEI is to permit Main Street to hold equity
investments in portfolio companies which are pass
through entities for tax purposes in order to comply with
the source income requirements contained in the RIC
tax provisions. MSEI is not consolidated with Main Street for
income tax purposes and may generate
S-54
MAIN
STREET CAPITAL CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
income tax expense as a result of its ownership of certain core
portfolio investments. This income tax expense, if any, is
reflected in Main Streets Consolidated Statement of
Operations.
MSEI uses the liability method in accounting for income taxes.
Deferred tax assets and liabilities are recorded for temporary
differences between the tax basis of assets and liabilities and
their reported amounts in the financial statements, using
statutory tax rates in effect for the year in which the
temporary differences are expected to reverse. A valuation
allowance is provided against deferred tax assets when it is
more likely than not that some portion or all of the deferred
tax asset will not be realized.
Taxable income generally differs from net income for financial
reporting purposes due to temporary and permanent differences in
the recognition of income and expenses. Taxable income generally
excludes net unrealized appreciation or depreciation, as
investment gains or losses are not included in taxable income
until they are realized.
|
|
7.
|
Net
Realized Gains or Losses from Investments and Net Change in
Unrealized Appreciation or Depreciation from
Investments
|
Realized gains or losses are measured by the difference between
the net proceeds from the sale or redemption of an investment
and the cost basis of the investment, without regard to
unrealized appreciation or depreciation previously recognized,
and includes investments written-off during the period net of
recoveries. Net change in unrealized appreciation or
depreciation from investments reflects the net change in the
valuation of the investment portfolio and financial instruments
pursuant to Main Streets valuation guidelines and the
reclassification of any prior period unrealized appreciation or
depreciation on exited investments.
|
|
8.
|
Concentration
of Credit Risks
|
Main Street places its cash in financial institutions, and, at
times, such balances may be in excess of the federally insured
limit.
|
|
9.
|
Fair
Value of Financial Instruments
|
Fair value estimates are made at discrete points in time based
on relevant information. These estimates may be subjective in
nature and involve uncertainties and matters of significant
judgment and, therefore, cannot be determined with precision.
Main Street believes that the carrying amounts of its financial
instruments, consisting of cash and cash equivalents,
receivables, accounts payable and accrued liabilities
approximate the fair values of such items. Marketable securities
and idle funds investments consist primarily of short term
investments in secured debt investments, U.S. government
agency securities, certificates of deposit, and diversified bond
funds. The fair value determination for these investments under
the provisions of ASC 820 primarily consists of Level 1
observable inputs. The SBIC debentures remain a strategic
advantage due to their flexible structure, long-term duration,
and low fixed interest rates. As of September 30, 2009, had
Main Street adopted the fair value option under ASC 825,
Financial Instruments, relating to accounting for debt
obligations at their fair value, Main Street estimates the fair
value of its SBIC debentures would be approximately
$45.1 million, or $9.9 million less than the face
value of the SBIC debentures.
|
|
10.
|
Recently
Issued Accounting Standards
|
In June 2008, the FASB amended ASC 260, Earnings Per Share
with ASC
260-10-45-61A
which addresses whether instruments granted in share-based
payment transactions are participating securities prior to
vesting and, therefore, need to be included in the earnings
allocation in computing earnings per share (EPS).
ASC
260-10-45-61A
is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods
within those years. All prior-period EPS data presented has been
adjusted retrospectively (including interim financial
statements, summaries of earnings, and selected financial data)
to
S-55
MAIN
STREET CAPITAL CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
conform to the amended provisions of ASC 260. Early application
is not permitted. On July 1, 2008 and 2009, Main
Streets Board of Directors approved the issuance of shares
of restricted stock to Main Street employees and independent
directors as discussed further in Note J. Main Street
determined that these shares of restricted stock are
participating securities prior to vesting. For the nine months
ended September 30, 2009 and 2008, 292,058 and
255,645 shares, respectively, of non-vested restricted
stock have been included in Main Streets basic and diluted
EPS computations.
In October 2008, the FASB amended ASC 820 with ASC
820-10-35-15A,
Financial Assets in a Market That Is Not Active, to
provide an illustrative example of how to determine the fair
value of a financial asset in an inactive market. ASC
820-10-35-15A
does not change the fair value measurement principles previously
set forth. Since adopting ASC 820 in January 2008, Main
Streets practices for determining the fair value of its
investment portfolio and financial instruments have been, and
continue to be, consistent with the guidance provided in ASC
820-10-35-15A.
Therefore, Main Streets adoption of the update did not
affect its practices for determining the fair value of its
investment portfolio and financial instruments, and its adoption
did not have a material effect on its financial position or
results of operations.
In April 2009, the FASB amended ASC 820 and ASC 825 with ASC
820-10-35,
Subsequent Measurement, and ASC
825-10-65,
Transition and Open Effective Date Information. Both
amendments are effective for reporting periods ending on or
after June 15, 2009. Since adopting ASC 820 and ASC 825 in
January 2008, Main Streets practices for determining fair
value and for disclosures about the fair value of its investment
portfolio and financial instruments have been, and continue to
be, consistent with the guidance provided in the amended
pronouncements. Therefore, Main Streets adoption of these
updates did not affect its practices for determining the fair
value of its investment portfolio and financial instruments, and
its adoption did not have a material effect on its financial
position or results of operations.
In May 2009, the FASB amended ASC 855, Subsequent Events
with ASC
855-10-50,
Disclosure, which establishes general standards of
accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued or
are available to be issued. ASC
855-10-50
includes a new required disclosure of the date through which an
entity has evaluated subsequent events and is effective for
interim periods or fiscal years ending after June 15, 2009.
Main Streets adoption of ASC
855-10-50
did not have a material effect on its financial position or
results of operations.
In June 2009, the FASB issued ASC 105, Generally Accepted
Accounting Principles, which became the single official
source of authoritative, nongovernmental U.S. GAAP, other
than rules and interpretive releases issued by the Securities
and Exchange Commission. The Codification reorganized the
literature and changed the naming mechanism by which topics are
referenced. ASC 105 was effective for Main Street during its
interim period ended September 30, 2009. As required,
references to pre-codification accounting literature have been
changed throughout this quarterly report on
Form 10-Q
to appropriately reference the Codification. The Companys
accounting policies and amounts presented in the financial
statements were not impacted by this change.
NOTE C
FAIR VALUE HIERARCHY FOR INVESTMENTS
In connection with valuing portfolio investments, marketable
securities and idle funds investments, Main Street adopted the
provisions of ASC 820 in the first quarter of 2008. ASC 820
defines fair value, establishes a framework for measuring fair
value, establishes a fair value hierarchy based on the quality
of inputs used to measure fair value, and enhances disclosure
requirements for fair value measurements. Main Street accounts
for these investments at fair value.
S-56
MAIN
STREET CAPITAL CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
Fair
Value Hierarchy
In accordance with ASC 820, Main Street has categorized its
portfolio investments, marketable securities and idle funds
investments based on the priority of the inputs to the valuation
technique, into a three-level fair value hierarchy. The fair
value hierarchy gives the highest priority to quoted prices in
active markets for identical investments (Level 1) and
the lowest priority to unobservable inputs (Level 3).
Portfolio investments, marketable securities and idle funds
investments, recorded on Main Streets balance sheet are
categorized based on the inputs to the valuation techniques as
follows:
Level 1 Investments whose values are based on
unadjusted quoted prices for identical assets in an active
market that Main Street has the ability to access (examples
include investments in active exchange-traded equity securities
and investments in most U.S. government and agency
securities).
Level 2 Investments whose values are based on
quoted prices in markets that are not active or model inputs
that are observable either directly or indirectly for
substantially the full term of the investment. Level 2
inputs include the following:
|
|
|
|
|
Quoted prices for similar assets in active markets (for example,
investments in restricted stock);
|
|
|
|
Quoted prices for identical or similar assets in non-active
markets (for example, investments in thinly traded public
companies);
|
|
|
|
Pricing models whose inputs are observable for substantially the
full term of the investment (for example, market interest rate
indices); and
|
|
|
|
Pricing models whose inputs are derived principally from, or
corroborated by, observable market data through correlation or
other means for substantially the full term of the investment.
|
Level 3 Investments whose values are based on
prices or valuation techniques that require inputs that are both
unobservable and significant to the overall fair value
measurement. These inputs reflect managements own
assumptions about the assumptions a market participant would use
in pricing the investment (for example, investments in illiquid
securities issued by private companies).
As required by ASC 820, when the inputs used to measure fair
value fall within different levels of the hierarchy, the level
within which the fair value measurement is categorized is based
on the lowest level input that is significant to the fair value
measurement in its entirety. For example, a Level 3 fair
value measurement may include inputs that are observable
(Levels 1 and 2) and unobservable (Level 3).
Therefore, gains and losses for such investments categorized
within the Level 3 table below may include changes in fair
value that are attributable to both observable inputs
(Levels 1 and 2) and unobservable inputs
(Level 3). Main Street conducts reviews of fair value
hierarchy classifications on a quarterly basis. Changes in the
observability of valuation inputs may result in a
reclassification for certain investments.
As of September 30, 2009 and December 31, 2008, all of
Main Streets marketable securities and idle funds
investments consisted primarily of investments in secured debt
investments, certificates of deposit, and diversified bond
funds. The fair value determination for these investments
primarily consisted of observable inputs. As a result, all of
Main Streets marketable securities and idle funds
investments were categorized as Level 1 as of
September 30, 2009 and December 31, 2008, with a fair
value of $39,912,232 and $4,389,795, respectively.
As of September 30, 2009, all of Main Streets
portfolio investments consisted of illiquid securities issued by
private companies. The fair value determination for these
investments primarily consisted of unobservable
S-57
MAIN
STREET CAPITAL CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
inputs. As a result, all of Main Streets portfolio
investments were categorized as Level 3. The fair value
determination of each portfolio investment required one or more
of the following unobservable inputs:
|
|
|
|
|
Financial information obtained from each portfolio company,
including unaudited statements of operations and balance sheets
for the most recent period available as compared to budgeted
numbers;
|
|
|
|
Current and projected financial condition of the portfolio
company;
|
|
|
|
Current and projected ability of the portfolio company to
service its debt obligations;
|
|
|
|
Type and amount of collateral, if any, underlying the investment;
|
|
|
|
Current financial ratios (e.g., fixed charge coverage ratio,
interest coverage ratio, and net debt/EBITDA ratio) applicable
to the investment;
|
|
|
|
Current liquidity of the investment and related financial ratios
(e.g., current ratio and quick ratio);
|
|
|
|
Pending debt or capital restructuring of the portfolio company;
|
|
|
|
Projected operating results of the portfolio company;
|
|
|
|
Current information regarding any offers to purchase the
investment;
|
|
|
|
Current ability of the portfolio company to raise any additional
financing as needed;
|
|
|
|
Changes in the economic environment which may have a material
impact on the operating results of the portfolio company;
|
|
|
|
Internal occurrences that may have an impact (both positive and
negative) on the operating performance of the portfolio company;
|
|
|
|
Qualitative assessment of key management;
|
|
|
|
Contractual rights, obligations or restrictions associated with
the investment; and
|
|
|
|
Other factors deemed relevant.
|
The following table provides a summary of changes in fair value
of Main Streets Level 3 portfolio investments for the
nine months ended September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes from
|
|
|
Unrealized
|
|
|
|
|
Type of
|
|
December 31, 2008
|
|
|
Accretion of
|
|
|
Redemptions/
|
|
|
New
|
|
|
Unrealized
|
|
|
Appreciation
|
|
|
September 30, 2009
|
|
Investment
|
|
Fair Value
|
|
|
Unearned Income
|
|
|
Repayments(1)
|
|
|
Investments(1)
|
|
|
to Realized
|
|
|
(Depreciation)
|
|
|
Fair Value
|
|
|
Debt
|
|
$
|
81,751,043
|
|
|
$
|
453,545
|
|
|
$
|
(9,190,489
|
)
|
|
$
|
15,070,907
|
|
|
$
|
(183,105
|
)
|
|
$
|
(4,642,527
|
)
|
|
$
|
83,259,374
|
|
Equity
|
|
|
22,735,146
|
|
|
|
|
|
|
|
(132,480
|
)
|
|
|
3,989,278
|
|
|
|
(365,853
|
)
|
|
|
3,645,687
|
|
|
|
29,871,778
|
|
Equity warrants
|
|
|
5,845,000
|
|
|
|
|
|
|
|
(109,510
|
)
|
|
|
1,642,611
|
|
|
|
(428,000
|
)
|
|
|
3,377,470
|
|
|
|
10,327,571
|
|
Investment Manager
|
|
|
16,675,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(334,920
|
)
|
|
|
16,340,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
127,006,815
|
|
|
$
|
453,545
|
|
|
$
|
(9,432,479
|
)
|
|
$
|
20,702,796
|
|
|
$
|
(976,958
|
)
|
|
$
|
2,045,710
|
|
|
$
|
139,799,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes the impact of non-cash conversions |
Core
Portfolio Investments
Main Streets core portfolio investments principally
consist of secured debt, equity warrants and direct equity
investments in privately held companies. The core debt
investments are secured by either a first or second lien on the
assets of the portfolio company, generally bear interest at
fixed rates, and generally mature between five and seven years
from the original investment. In most portfolio companies, Main
Street also
S-58
MAIN
STREET CAPITAL CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
receives nominally priced equity warrants
and/or makes
direct equity investments, usually in connection with a debt
investment.
As discussed further in Note D, the Investment Manager is a
wholly owned subsidiary of MSCC. However, the Investment Manager
is accounted for as a portfolio investment of Main Street since
it conducts a significant portion of its investment management
activities for entities outside of MSCC and its subsidiaries. To
allow for more relevant disclosure of Main Streets core
investment portfolio, Main Streets investment in the
Investment Manager has been excluded from the tables and amounts
set forth in this Note C.
Investment income, consisting of interest, dividends and fees,
can fluctuate dramatically due to various factors, including
repayment of a debt investment or sale of an equity interest.
Revenue recognition in any given year could be highly
concentrated among several portfolio companies. For the nine
months ended September 30, 2009, Main Street did not record
investment income from any portfolio company in excess of 10% of
total investment income. For the nine months ended
September 30, 2008, Main Street recorded investment income
from one portfolio company in excess of 10% of total investment
income. The investment income from that portfolio company
represented approximately 23% of the total investment income for
the period, principally related to high levels of dividend
income and transaction and structuring fees on the new
investment in such company.
As of September 30, 2009, Main Street had debt and equity
investments in 36 core portfolio companies with an aggregate
fair value of $123,458,723 and a weighted average effective
yield on its debt investments of approximately 14.0%.
Approximately 81% of Main Streets total core portfolio
investments at cost were in the form of debt investments and 92%
of such debt investments at cost were secured by first priority
liens on the assets of Main Streets portfolio companies as
of September 30, 2009. At September 30, 2009, Main
Street had equity ownership in approximately 92% of its core
portfolio companies and the average fully diluted equity
ownership in those portfolio companies was approximately 24%. As
of December 31, 2008, Main Street had debt and equity
investments in 31 core portfolio companies with an aggregate
fair value of $110,331,189 and a weighted average effective
yield on its debt investments of approximately 14.0%. The
weighted average yields were computed using the effective
interest rates for all debt investments at September 30,
2009 and December 31, 2008, including amortization of
deferred debt origination fees and accretion of original issue
discount but excluding any debt investments on non-accrual
status.
Summaries of the composition of Main Streets core
investment portfolio at cost and fair value as a percentage of
total core portfolio investments are shown in the following
table:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
Cost:
|
|
2009
|
|
|
2008
|
|
|
First lien debt
|
|
|
73.8
|
%
|
|
|
76.2
|
%
|
Equity
|
|
|
13.7
|
%
|
|
|
11.0
|
%
|
Second lien debt
|
|
|
6.8
|
%
|
|
|
7.4
|
%
|
Equity warrants
|
|
|
5.7
|
%
|
|
|
5.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
Fair Value:
|
|
2009
|
|
|
2008
|
|
|
First lien debt
|
|
|
61.0
|
%
|
|
|
67.0
|
%
|
Equity
|
|
|
19.8
|
%
|
|
|
15.7
|
%
|
Equity warrants
|
|
|
12.7
|
%
|
|
|
10.2
|
%
|
Second lien debt
|
|
|
6.5
|
%
|
|
|
7.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
S-59
MAIN
STREET CAPITAL CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
The following table shows the core portfolio composition by
geographic region of the United States at cost and fair value as
a percentage of total core portfolio investments. The geographic
composition is determined by the location of the corporate
headquarters of the portfolio company.
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
Cost:
|
|
2009
|
|
|
2008
|
|
|
Southwest
|
|
|
49.7
|
%
|
|
|
50.2
|
%
|
West
|
|
|
30.9
|
%
|
|
|
36.3
|
%
|
Southeast
|
|
|
7.7
|
%
|
|
|
5.1
|
%
|
Midwest
|
|
|
6.8
|
%
|
|
|
4.7
|
%
|
Northeast
|
|
|
4.9
|
%
|
|
|
3.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
Fair Value:
|
|
2009
|
|
|
2008
|
|
|
Southwest
|
|
|
56.4
|
%
|
|
|
56.0
|
%
|
West
|
|
|
27.5
|
%
|
|
|
31.1
|
%
|
Midwest
|
|
|
6.5
|
%
|
|
|
5.1
|
%
|
Northeast
|
|
|
5.5
|
%
|
|
|
3.7
|
%
|
Southeast
|
|
|
4.1
|
%
|
|
|
4.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
S-60
MAIN
STREET CAPITAL CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
Main Streets core portfolio investments are generally in
lower middle-market companies conducting business in a variety
of industries. Set forth below are tables showing the
composition of Main Streets core portfolio investments by
industry at cost and fair value as of September 30, 2009
and December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
Cost:
|
|
2009
|
|
|
2008
|
|
|
Industrial equipment
|
|
|
10.7
|
%
|
|
|
12.0
|
%
|
Professional services
|
|
|
9.9
|
%
|
|
|
4.1
|
%
|
Precast concrete manufacturing
|
|
|
9.6
|
%
|
|
|
11.3
|
%
|
Custom wood products
|
|
|
8.6
|
%
|
|
|
9.3
|
%
|
Electronics manufacturing
|
|
|
6.8
|
%
|
|
|
7.6
|
%
|
Retail
|
|
|
6.7
|
%
|
|
|
6.5
|
%
|
Transportation/Logistics
|
|
|
6.5
|
%
|
|
|
6.6
|
%
|
Agricultural services
|
|
|
6.3
|
%
|
|
|
8.3
|
%
|
Restaurant
|
|
|
5.5
|
%
|
|
|
6.1
|
%
|
Industrial services
|
|
|
4.7
|
%
|
|
|
0.5
|
%
|
Mining and minerals
|
|
|
4.3
|
%
|
|
|
4.8
|
%
|
Manufacturing
|
|
|
4.0
|
%
|
|
|
4.7
|
%
|
Health care products
|
|
|
3.9
|
%
|
|
|
5.8
|
%
|
Health care services
|
|
|
3.8
|
%
|
|
|
4.2
|
%
|
Metal fabrication
|
|
|
2.5
|
%
|
|
|
3.4
|
%
|
Equipment rental
|
|
|
2.2
|
%
|
|
|
2.1
|
%
|
Governmental services
|
|
|
1.6
|
%
|
|
|
0.0
|
%
|
Infrastructure products
|
|
|
1.5
|
%
|
|
|
1.7
|
%
|
Information services
|
|
|
0.8
|
%
|
|
|
0.9
|
%
|
Distribution
|
|
|
0.1
|
%
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
S-61
MAIN
STREET CAPITAL CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
Fair Value:
|
|
2009
|
|
|
2008
|
|
|
Precast concrete manufacturing
|
|
|
11.8
|
%
|
|
|
13.7
|
%
|
Professional services
|
|
|
10.3
|
%
|
|
|
5.4
|
%
|
Health care services
|
|
|
8.1
|
%
|
|
|
6.1
|
%
|
Agricultural services
|
|
|
8.0
|
%
|
|
|
8.1
|
%
|
Industrial services
|
|
|
6.8
|
%
|
|
|
2.8
|
%
|
Transportation/Logistics
|
|
|
6.7
|
%
|
|
|
6.5
|
%
|
Retail
|
|
|
6.6
|
%
|
|
|
7.0
|
%
|
Electronics manufacturing
|
|
|
6.4
|
%
|
|
|
7.7
|
%
|
Restaurant
|
|
|
6.3
|
%
|
|
|
6.7
|
%
|
Industrial equipment
|
|
|
6.1
|
%
|
|
|
10.2
|
%
|
Custom wood products
|
|
|
5.3
|
%
|
|
|
6.8
|
%
|
Metal fabrication
|
|
|
4.7
|
%
|
|
|
4.3
|
%
|
Health care products
|
|
|
3.9
|
%
|
|
|
5.8
|
%
|
Manufacturing
|
|
|
3.8
|
%
|
|
|
5.1
|
%
|
Equipment rental
|
|
|
2.2
|
%
|
|
|
2.0
|
%
|
Governmental services
|
|
|
1.8
|
%
|
|
|
0.0
|
%
|
Information services
|
|
|
0.6
|
%
|
|
|
0.9
|
%
|
Infrastructure products
|
|
|
0.3
|
%
|
|
|
0.5
|
%
|
Distribution
|
|
|
0.3
|
%
|
|
|
0.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
At September 30, 2009, Main Street had one investment that
was greater than 10% of its total core investment portfolio at
fair value. That investment represented approximately 12% of the
core portfolio at fair value. At December 31, 2008, Main
Street had one investment that was greater than 10% of its total
core investment portfolio at fair value. That investment
represented approximately 14% of the core portfolio at fair
value at December 31, 2008. For the three months ended
September 30, 2009, Main Street received a
$0.9 million special, non-recurring dividend on a portfolio
company investment.
NOTE D
WHOLLY OWNED INVESTMENT MANAGER
As part of the Formation Transactions, the Investment Manager
became a wholly owned subsidiary of MSCC. However, the
Investment Manager is accounted for as a portfolio investment,
since the Investment Manager is not an investment company and
since it conducts a significant portion of its investment
management activities for Main Street Capital II, LP (MSC
II), a separate small business investment company
(SBIC) fund, which is not part of MSCC or one of its
subsidiaries. The Investment Manager receives recurring
investment management fees from MSC II pursuant to a separate
investment advisory agreement, paid quarterly, which currently
total $3.3 million per year, and the Investment Manager
also receives other consulting or advisory fees from third
parties (the External Services). The portfolio
investment in the Investment Manager is accounted for using fair
value accounting, with the fair value determined by Main Street
and approved, in good faith, by Main Streets Board of
Directors, based on the same valuation methodologies applied to
determine the original $18 million valuation. The valuation
for the Investment Manager is based on the total estimated
present value of the net cash flows received for the External
Services, over the estimated dollar averaged life of the related
investment advisory or consulting contract, and is also based on
comparable public market transactions. The net cash flows
utilized in the valuation of the Investment
S-62
MAIN
STREET CAPITAL CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
Manager exclude any revenues and expenses from MSCC and its
subsidiaries, but include the External Services, and are reduced
by an estimated allocation of costs related to providing
services to MSC II and other third parties. Any change in fair
value of the Investment Manager investment is recognized on Main
Streets statement of operations as Unrealized
appreciation (depreciation) in Investment in affiliated
Investment Manager, with a corresponding increase (in the
case of appreciation) or decrease (in the case of depreciation)
to Investment in affiliated Investment Manager on
Main Streets balance sheet. Main Street believes that the
valuation for the Investment Manager will generally decrease
over the life of the investment advisory and consulting
contracts with MSC II and other third parties, absent obtaining
additional recurring cash flows from performing the External
Services for other external investment entities or other third
parties.
The Investment Manager has elected, for tax purposes, to be
treated as a taxable entity and is taxed at normal corporate tax
rates based on its taxable income. The taxable income of the
Investment Manager may differ from its book income due to
temporary book and tax timing differences, as well as permanent
differences. The Investment Manager provides for any current
taxes payable and deferred tax items in its separate financial
statements.
MSCC has a support services agreement with the Investment
Manager that is structured to provide reimbursement to the
Investment Manager for any personnel, administrative and other
costs it incurs in conducting its operational and investment
management activities in excess of the fees received for the
External Services. As a wholly owned subsidiary of MSCC, the
Investment Manager manages the
day-to-day
operational and investment activities of MSCC and its
subsidiaries, as well as the investment activities of MSC II.
The Investment Manager pays personnel and other administrative
expenses, except those specifically required to be borne by
MSCC, which principally include direct costs that are specific
to MSCCs status as a publicly traded entity. The expenses
paid by the Investment Manager include the cost of salaries and
related benefits, rent, equipment and other administrative costs
required for
day-to-day
operations.
Pursuant to the support services agreement with MSCC, the
Investment Manager is reimbursed by MSCC for its excess cash
expenses associated with providing investment management and
other services to MSCC and its subsidiaries, as well as MSC II
and other third parties. Each quarter, as part of the support
services agreement, MSCC makes payments to cover all cash
expenses incurred by the Investment Manager, less the External
Services fees that the Investment Manager receives from MSC II
and other third parties pursuant to long-term investment
advisory agreements and consulting agreements. For the nine
months ended September 30, 2009 and 2008, the expenses
reimbursed by MSCC to the Investment Manager were $306,175 and
$719,777, respectively.
In its separate stand alone financial statements as summarized
below, the Investment Manager recognized an $18 million
intangible asset related to the investment advisory agreement
with MSC II and consistent with Staff Accounting
Bulletin No. 54, Application of
Pushdown Basis of Accounting in Financial Statements
of Subsidiaries Acquired by Purchase
(SAB 54). Under SAB 54, push-down
accounting is required in purchase transactions that
result in an entity becoming substantially wholly owned.
In this case, MSCC acquired 100% of the equity interests in the
Investment Manager. Because the $18 million value
attributed to MSCCs investment in the Investment Manager
was derived from the long-term, recurring management fees under
the investment advisory agreement with MSC II, the same
methodology used to determine the $18 million valuation of
the Investment Manager was utilized to establish the push-down
accounting basis for the intangible asset. The intangible asset
is being amortized over the estimated economic life of the
investment advisory agreement with MSC II. For the nine months
ended September 30, 2009 and 2008, the Investment Manager
recognized $767,694 and $872,931 in amortization expense
associated with the intangible asset. Amortization expense is
not included in the expenses reimbursed by MSCC to the
Investment Manager based upon the support services agreement
since it is non-cash in nature.
S-63
MAIN
STREET CAPITAL CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
Summarized financial information from the separate financial
statements of the Investment Manager is as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
ASSETS
|
Cash
|
|
$
|
17,385
|
|
|
$
|
20,772
|
|
Accounts receivable
|
|
|
30,794
|
|
|
|
17,990
|
|
Accounts receivable MSCC
|
|
|
212,349
|
|
|
|
302,633
|
|
Intangible asset (net of accumulated amortization of $1,941,901
and $1,174,207 as of September 30, 2009 and
December 31, 2008, respectively)
|
|
|
16,058,099
|
|
|
|
16,825,793
|
|
Deposits and other
|
|
|
77,428
|
|
|
|
103,392
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
16,396,055
|
|
|
$
|
17,270,580
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
Accounts payable and accrued liabilities
|
|
$
|
482,529
|
|
|
$
|
589,360
|
|
Equity
|
|
|
15,913,526
|
|
|
|
16,681,220
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
16,396,055
|
|
|
$
|
17,270,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
Management fee income from MSC II
|
|
$
|
831,300
|
|
|
$
|
831,300
|
|
|
$
|
2,493,900
|
|
|
$
|
2,493,900
|
|
Other management advisory and consulting fees
|
|
|
116,187
|
|
|
|
3,000
|
|
|
|
230,312
|
|
|
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income
|
|
|
947,487
|
|
|
|
834,300
|
|
|
|
2,724,212
|
|
|
|
2,496,900
|
|
Salaries, benefits and other personnel costs
|
|
|
(1,040,928
|
)
|
|
|
(941,279
|
)
|
|
|
(2,510,736
|
)
|
|
|
(2,626,201
|
)
|
Occupancy expense
|
|
|
(86,982
|
)
|
|
|
(45,134
|
)
|
|
|
(263,304
|
)
|
|
|
(132,297
|
)
|
Professional expenses
|
|
|
(9,495
|
)
|
|
|
(19,408
|
)
|
|
|
(22,127
|
)
|
|
|
(24,607
|
)
|
Amortization expense intangible asset
|
|
|
(261,431
|
)
|
|
|
(296,052
|
)
|
|
|
(767,694
|
)
|
|
|
(872,931
|
)
|
Other
|
|
|
(36,319
|
)
|
|
|
(103,518
|
)
|
|
|
(234,220
|
)
|
|
|
(433,572
|
)
|
Expense reimbursement from MSCC
|
|
|
226,237
|
|
|
|
275,039
|
|
|
|
306,175
|
|
|
|
719,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net expenses
|
|
|
(1,208,918
|
)
|
|
|
(1,130,352
|
)
|
|
|
(3,491,906
|
)
|
|
|
(3,369,831
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(261,431
|
)
|
|
$
|
(296,052
|
)
|
|
$
|
(767,694
|
)
|
|
$
|
(872,931
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE E
SBIC DEBENTURES
SBIC debentures payable at September 30, 2009 and
December 31, 2008 were $55 million. SBIC debentures
provide for interest to be paid semi-annually, with principal
due at the applicable
10-year
maturity date. The weighted average interest rate as of
September 30, 2009 and December 31, 2008 was 5.78%.
The first principal maturity due under the existing SBIC
debentures is in 2013, and the weighted average duration
S-64
MAIN
STREET CAPITAL CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
is approximately 5.7 years. The Fund is subject to regular
compliance examinations by the Small Business Administration.
There have been no historical findings resulting from these
examinations.
NOTE F
INVESTMENT AND TREASURY CREDIT FACILITIES
On October 24, 2008, Main Street entered into a
$30 million, three-year investment credit facility (the
Investment Facility) with Branch Banking and
Trust Company (BB&T) and Compass Bank, as
lenders, and BB&T, as administrative agent for the lenders.
The purpose of the Investment Facility is to provide additional
liquidity in support of future investment and operational
activities. The Investment Facility allows for an increase in
the total size of the facility up to $75 million, subject
to certain conditions, and has a maturity date of
October 24, 2011. Borrowings under the Investment Facility
bear interest, subject to Main Streets election, on a per
annum basis equal to (i) the applicable LIBOR rate plus
2.75% or (ii) the applicable base rate plus 0.75%. Main
Street pays unused commitment fees of 0.375% per annum on the
average unused lender commitments under the Investment Facility.
The Investment Facility is secured by certain assets of MSCC,
MSEI and the Investment Manager. The Investment Facility
contains certain affirmative and negative covenants, including
but not limited to: (i) maintaining a minimum liquidity of
not less than 10% of the aggregate principal amount outstanding,
(ii) maintaining an interest coverage ratio of at least 2.0
to 1.0, and (iii) maintaining a minimum tangible net worth.
At September 30, 2009, Main Street had no borrowings
outstanding under the Investment Facility, and Main Street was
in compliance with all covenants of the Investment Facility.
On December 31, 2007, Main Street entered into a
treasury-based credit facility (the Treasury
Facility) among Main Street, Wachovia Bank, National
Association and BB&T, as administrative agent for the
lenders. The purpose of the Treasury Facility was to provide
flexibility in the sizing of portfolio investments and to
facilitate the growth of Main Streets investment
portfolio. However, due to the maturation of Main Streets
investment portfolio and the additional flexibility provided by
the Investment Facility, Main Street unilaterally terminated the
Treasury Facility on July 10, 2009 in order to eliminate
the unused commitment fees that would have been paid under this
facility over its remaining term.
S-65
MAIN
STREET CAPITAL CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
NOTE G
FINANCIAL HIGHLIGHTS
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Per Share Data:
|
|
|
|
|
|
|
|
|
Net asset value at beginning of period
|
|
$
|
12.20
|
|
|
$
|
12.85
|
|
Net investment income(1)
|
|
|
0.69
|
|
|
|
0.84
|
|
Net realized gains(1)(2)
|
|
|
0.15
|
|
|
|
0.56
|
|
Net change in unrealized appreciation (depreciation) on
investments(1)(2)
|
|
|
0.13
|
|
|
|
(0.51
|
)
|
Income tax (provision) benefit(1)(2)
|
|
|
0.08
|
|
|
|
0.26
|
|
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting from operations(1)
|
|
|
1.05
|
|
|
|
1.15
|
|
Net decrease in net assets from dividends to stockholders
|
|
|
(1.13
|
)
|
|
|
(1.05
|
)
|
Net decrease in net assets from dividends declared as of
September 30, 2008 for the October 15,
2008 monthly dividend
|
|
|
|
|
|
|
(0.13
|
)
|
Other(3)
|
|
|
(0.11
|
)
|
|
|
(0.33
|
)
|
|
|
|
|
|
|
|
|
|
Net asset value at September 30, 2009 and 2008
|
|
$
|
12.01
|
|
|
$
|
12.49
|
|
|
|
|
|
|
|
|
|
|
Market value at September 30, 2009 and 2008
|
|
$
|
14.23
|
|
|
$
|
11.55
|
|
Shares outstanding at September 30, 2009 and 2008
|
|
|
10,749,640
|
|
|
|
9,241,183
|
|
|
|
|
(1) |
|
Based on weighted average number of common shares outstanding
for the period. |
|
(2) |
|
Net realized gains, net change in unrealized appreciation or
depreciation, and income taxes can fluctuate significantly from
period to period. |
|
(3) |
|
Includes the impact of the different share amounts as a result
of calculating certain per share data based on the weighted
average basic shares outstanding during the period and certain
per share data based on the shares outstanding as of a period
end or transaction date. |
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Net assets at end of period
|
|
$
|
129,062,825
|
|
|
$
|
115,417,819
|
|
Average net assets
|
|
|
118,259,377
|
|
|
|
115,632,576
|
|
Average outstanding debt
|
|
|
55,000,000
|
|
|
|
55,000,000
|
|
Ratio of total expenses, excluding interest expense, to average
net assets(1)
|
|
|
1.81
|
%
|
|
|
1.99
|
%
|
Ratio of total expenses to average net assets(1)
|
|
|
4.20
|
%
|
|
|
4.36
|
%
|
Ratio of net investment income to average net assets(1)
|
|
|
5.69
|
%
|
|
|
6.59
|
%
|
Total return based on change in net asset value(2)
|
|
|
9.17
|
%
|
|
|
9.46
|
%
|
|
|
|
(1) |
|
Not annualized. |
|
(2) |
|
Total return based on change in net asset value was calculated
using the sum of ending net asset value plus distributions to
stockholders during the period less equity issuances during the
period, as divided by the beginning net asset value. |
S-66
MAIN
STREET CAPITAL CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
NOTE H
DIVIDEND, DISTRIBUTIONS AND TAXABLE INCOME
In September 2008, Main Street announced that it would begin
making dividend payments on a monthly, as opposed to a
quarterly, basis beginning in October 2008. Main Street paid
monthly dividends of $0.125 per share for each month beginning
January 2009 through September 2009, totaling
$10.8 million, or $1.13 per share for the period. For the
nine months ended September 30, 2008, Main Streets
Board of Directors declared dividends of approximately
$10.6 million or $1.18 per common share for the period.
The determination of the tax attributes for Main Streets
distributions is made annually, based upon its taxable income
for the full year and distributions paid for the full year.
Therefore, a determination made on an interim basis may not be
representative of the actual tax attributes of distributions for
a full year. Main Streets estimates that the tax
attributes of its distributions
year-to-date
as of September 30, 2009 consist substantially of ordinary
income. There can be no assurance that this estimate is
representative of the final tax attributes of Main Streets
2009 distributions to its stockholders. Ordinary dividend
distributions from a RIC do not qualify for the 15% maximum tax
rate on dividend income from domestic corporations and qualified
foreign corporations, except to the extent that the RIC received
the income in the form of qualifying dividends from domestic
corporations and qualified foreign corporations (which Main
Street did not receive during the
year-to-date
period of 2009).
MSCC has elected to be treated for federal income tax purposes
as a RIC. As a RIC, MSCC generally will not pay corporate-level
federal income taxes on any net ordinary income or capital gains
that MSCC distributes to its stockholders as dividends. MSCC
must generally distribute at least 90% of its investment company
taxable income to qualify for pass-through tax treatment and
maintain its RIC status. As part of maintaining RIC status,
undistributed taxable income (subject to a 4% excise tax)
pertaining to a given fiscal year may be distributed up to
12 months subsequent to the end of that fiscal year,
provided such dividends are declared prior to the filing of the
federal income tax return for the prior year.
One of MSCCs wholly owned subsidiaries, MSEI, is a taxable
entity which holds certain core portfolio investments for Main
Street. MSEI is consolidated with Main Street for financial
reporting purposes, and the core portfolio investments held by
MSEI are included in Main Streets consolidated financial
statements. The principal purpose of MSEI is to permit Main
Street to hold equity investments in portfolio companies which
are pass through entities for tax purposes in order
to comply with the source income requirements
contained in the RIC tax provisions of the Code. MSEI is not
consolidated with Main Street for income tax purposes and may
generate income tax expense or income tax benefit as a result of
its ownership of various core portfolio investments. This income
tax expense or benefit, if any, is reflected in Main
Streets Consolidated Statement of Operations. For the
three months ended September 30, 2009, Main Street
recognized an income tax benefit of $1,372,451 primarily
consisting of deferred tax benefits related to net unrealized
depreciation on certain portfolio investments held by MSEI.
S-67
MAIN
STREET CAPITAL CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
Listed below is a reconciliation of Net Increase
(Decrease) in Net Assets Resulting from Operations to
taxable income and also to total distributions declared to
common stockholders for the nine months ended September 30,
2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Estimated)
|
|
|
Net increase in net assets resulting from operations
|
|
$
|
10,308,481
|
|
|
$
|
10,364,435
|
|
Share-based compensation expense
|
|
|
767,218
|
|
|
|
315,726
|
|
Net change in unrealized (appreciation) depreciation on
investments
|
|
|
(1,311,636
|
)
|
|
|
4,584,033
|
|
Income tax provision (benefit)
|
|
|
(789,564
|
)
|
|
|
(2,297,265
|
)
|
Pre-tax book income of taxable subsidiary, MSEI, not
consolidated for tax purposes
|
|
|
(715,378
|
)
|
|
|
(1,140,575
|
)
|
Book income and tax income differences, including debt
origination, structuring fees and realized gains
|
|
|
267,430
|
|
|
|
1,398,661
|
|
|
|
|
|
|
|
|
|
|
Taxable income
|
|
|
8,526,551
|
|
|
|
13,225,015
|
|
Taxable income earned in prior year and carried forward for
distribution in current year
|
|
|
3,129,725
|
|
|
|
1,481,131
|
|
Taxable income earned in current period and carried forward for
distribution
|
|
|
(620,571
|
)
|
|
|
(4,080,868
|
)
|
|
|
|
|
|
|
|
|
|
Total distributions to common stockholders
|
|
$
|
11,035,705
|
|
|
$
|
10,625,278
|
|
|
|
|
|
|
|
|
|
|
NOTE I
DIVIDEND REINVESTMENT PLAN (DRIP)
Main Streets DRIP provides for the reinvestment of
dividends on behalf of its stockholders, unless a stockholder
has elected to receive dividends in cash. As a result, if Main
Street declares a cash dividend, the companys stockholders
who have not opted out of the DRIP by the dividend
record date will have their cash dividend automatically
reinvested into additional shares of MSCC common stock. Main
Street has the option to satisfy the share requirements of the
DRIP through the issuance of shares of common stock or through
open market purchases of common stock by the DRIP plan
administrator. Newly issued shares will be valued based upon the
final closing price of MSCCs common stock on the valuation
date determined for each dividend by Main Streets Board of
Directors. Shares purchased in the open market to satisfy the
DRIP requirements will be valued based upon the average price of
the applicable shares purchased by the DRIP plan administrator,
before any associated brokerage or other costs. Main
Streets DRIP is administered by its transfer agent on
behalf of Main Streets record holders and participating
brokerage firms. Brokerage firms and other financial
intermediaries may decide not to participate in Main
Streets DRIP but may provide a similar dividend
reinvestment plan.
For the nine months ended September 30, 2009,
$4.0 million of the total $10.8 million in dividends
paid to stockholders represented DRIP participation. During this
period, Main Street satisfied the DRIP participation
requirements with the purchase of 169,742 shares of common
stock in the open market and the issuance of 178,780 new shares.
For the nine months ended September 30, 2008,
$3.7 million of the total $9.5 million in dividends
paid to stockholders represented DRIP participation. Main Street
satisfied the DRIP participation requirements with the purchase
of 251,642 shares of common stock in the open market and
the issuance of 15,820 new shares. The shares disclosed above
relate only to Main Streets DRIP and exclude any activity
related to broker-managed dividend reinvestment plans.
S-68
MAIN
STREET CAPITAL CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
NOTE J
SHARE-BASED COMPENSATION
Main Street accounts for its share-based compensation plans
using the fair value method, as prescribed by ASC 718,
Compensation Stock Compensation. Accordingly,
for restricted stock awards, Main Street measured the grant date
fair value based upon the market price of its common stock on
the date of the grant and will amortize this fair value to
share-based compensation expense over the requisite service
period or vesting term.
On July 1, 2009, Main Streets Board of Directors
approved the issuance of 99,312 shares of restricted stock
to Main Street employees pursuant to the Main Street Capital
Corporation 2008 Equity Incentive Plan. These shares will vest
over a four-year period from the grant date and will be expensed
over the four-year service period starting on the grant date. On
July 1, 2008, Main Streets Board of Directors
approved the issuance of 245,645 shares of restricted stock
to Main Street employees pursuant to the Main Street Capital
Corporation 2008 Equity Incentive Plan. These shares are vesting
over a four-year period from the grant date and are being
expensed over the four-year service period starting on the grant
date.
On July 1, 2009, a total of 8,512 shares of restricted
stock was issued to Main Streets independent directors
pursuant to the Main Street Capital Corporation 2008
Non-Employee Director Restricted Stock Plan. These shares will
vest on the day immediately preceding Main Streets next
annual meeting of stockholders and will be expensed over a
one-year service period starting on the grant date. On
July 1, 2008, a total of 20,000 shares of restricted
stock was issued to Main Streets independent directors
pursuant to the Main Street Capital Corporation 2008
Non-Employee Director Restricted Stock Plan. One-half of those
shares vested immediately on the grant date, and the remaining
half vested on the day immediately preceding the June 2009
annual meeting of stockholders. As a result, 50% of those shares
were expensed during July 2008, and the remaining 50% were
expensed over a one-year service period starting on the grant
date and ending in June 2009.
For the nine months ended September 30, 2009, Main Street
recognized total share-based compensation expense of $767,218
related to the restricted stock issued to Main Street employees
and Main Streets independent directors.
As of September 30, 2009, there was $3,429,387 of total
unrecognized compensation cost related to Main Streets
non-vested restricted shares. This cost is expected to be
recognized over a weighted-average period of approximately
3.2 years.
NOTE K
STOCK OFFERING
In June 2009, Main Street completed a public stock offering
consisting of the public offering and sale of
1,437,500 shares of common stock, including the
underwriters exercise of the over-allotment option, at a
price to the public of $12.10 per share. The offering resulted
in total net proceeds of approximately $16.2 million, after
deducting underwriters commissions and offering costs.
NOTE L
EARNINGS PER SHARE
On January 1, 2009, Main Street adopted the provisions of
ASC
260-10-45-61A
within ASC 260, Earnings Per Share. Main Street includes
performance-based restricted stock in its calculation of basic
and diluted earnings per share when it believes it is probable
the performance criteria will be met and the forfeiture
provisions have not lapsed.
NOTE M
COMMITMENTS
At September 30, 2009, Main Street had two outstanding
commitments to fund unused revolving loans for up to $900,000 in
total.
S-69
MAIN
STREET CAPITAL CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
NOTE N
SUPPLEMENTAL CASH FLOW DISCLOSURES
Listed below are supplemental cash flow disclosures for the nine
months ended September 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Interest paid
|
|
$
|
3,323,852
|
|
|
$
|
3,267,981
|
|
Taxes paid
|
|
$
|
378,560
|
|
|
$
|
312,751
|
|
Non-cash financing activities:
|
|
|
|
|
|
|
|
|
Shares issued pursuant to the DRIP
|
|
$
|
2,345,116
|
|
|
$
|
213,728
|
|
NOTE O
RELATED PARTY TRANSACTIONS
We co-invested with MSC II in several existing core portfolio
investments prior to the IPO, but did not co-invest with MSC II
subsequent to the IPO and prior to June 2008. In June 2008, we
received exemptive relief from the SEC to allow us to resume
co-investing with MSC II in accordance with the terms of such
exemptive relief. MSC II is managed by the Investment Manager,
and the Investment Manager is wholly owned by MSCC. MSC II is an
SBIC fund with similar investment objectives to Main Street and
which began its investment operations in January 2006. The
co-investments among Main Street and MSC II had all been made at
the same time and on the same terms and conditions. The
co-investments were also made in accordance with the Investment
Managers conflicts policy and in accordance with the
applicable SBIC conflict of interest regulations.
As discussed further in Note D to the accompanying
consolidated financial statements, subsequent to the completion
of the Formation Transactions, the Investment Manager is a
wholly owned portfolio company of Main Street. At
September 30, 2009 and December 31, 2008, the
Investment Manager had a receivable of $212,349 and $302,633,
respectively, with MSCC related to cash expenses incurred by the
Investment Manager required to support Main Streets
business.
NOTE P
SUBSEQUENT EVENTS
On September 23, 2009, Main Street commenced a formal offer
to exchange (the Offer) shares of its common stock
for at least a majority of the limited partner interests in MSC
II. MSC II is an independently owned investment fund that
operates as an SBIC and commenced operations in January 2006.
MSC II has access to long-term, low-cost leverage through its
participation in the SBIC program. MSC II is managed by Main
Street pursuant a separate investment advisory services
agreement. The Offer is only being made for MSC II limited
partner interests that are not owned by affiliates
of Main Street, including any officers or directors of Main
Street. As part of the transactions related to the Offer, it is
contemplated that the general partner of MSC II will also be
assumed by Main Street for no consideration. The Offer is
subject to various conditions and approvals, including but not
limited to approval by the U.S. Small Business
Administration (SBA). The initial offer period
expired on October 23, 2009 and approximately 78% of the
total dollar value of the MSC II limited partner interests had
made an election to participate in the Offer during the initial
offer period. Since the required approval from SBA had not been
received at the end of the initial offer period and certain
other conditions had not been satisfied, the Offer was extended
for an additional
30-day
period to end on November 23, 2009. The maximum number
shares of Main Street common stock that may be issued pursuant
to the Offer would total approximately 1.3 million shares.
Owning a majority of MSC II will provide Main Street with access
to additional long-term leverage capacity through the SBIC
program, and Main Street
S-70
MAIN
STREET CAPITAL CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
currently projects that consummation of the Offer will be
accretive to its calendar year 2010 distributable net investment
income per share.
During October 2009, Main Street sold its portfolio investment
in Universal Scaffolding & Equipment, LLC
(Universal), which was on non-accrual status as of
September 30, 2009. Main Street had recorded unrealized
depreciation as of September 30, 2009 on its Universal
investment equal to the $4.3 million loss it will realize
on the sale in the fourth quarter of 2009.
Main Street has performed an evaluation of subsequent events
through November 6, 2009, which is the date the financial
statements were issued.
S-71
To the General Partner of
Main Street Capital II, LP
We have audited the combined balance sheets of Main Street
Capital II, LP (a Delaware limited partnership) and Main Street
Capital II GP, LLC (a Delaware limited liability company)
including the combined schedules of investments as of
December 31, 2008 and 2007, and the related combined
statements of operations, changes in members equity and
partners capital, cash flows, and the combined financial
highlights (see Note 10) for the years then ended.
These combined financial statements and combined financial
highlights are the responsibility of Main Street Capital II
GP, LLCs management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America as
established by the American Institute of Certified Public
Accountants. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of
material misstatement. An audit includes consideration of
internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements and financial
highlights referred to above present fairly, in all material
respects, the combined financial position of Main Street Capital
II, LP and Main Street Capital II GP, LLC as of
December 31, 2008 and 2007, and the combined results of
their operations, changes in members equity and
partners capital, cash flows and financial highlights for
the years then ended in conformity with accounting principles
generally accepted in the United States of America.
As discussed in Note 2 to the combined financial
statements, Main Street Capital II, LP adopted Accounting
Standards Codification 820, Fair Value Measurements and
Disclosures, effective January 1, 2008.
Houston, Texas
January 7, 2010
S-73
MAIN
STREET CAPITAL II, LP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
ASSETS
|
Investments at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
Control investments (cost: $38,182,778, $40,761,836, and
$38,061,598 as of September 30, 2009, December 31,
2008 and 2007, respectively)
|
|
$
|
31,588,348
|
|
|
$
|
41,002,450
|
|
|
$
|
39,192,926
|
|
Affiliate investments (cost: $39,395,499, $30,782,718, and
$24,910,609 as of September 30, 2009, December 31,
2008 and 2007, respectively)
|
|
|
31,840,792
|
|
|
|
22,957,869
|
|
|
|
19,955,498
|
|
Non-Control/Non-Affiliate investments (cost: $4,421,893,
$2,044,879, and $5,846,444 as of September 30, 2009,
December 31, 2008 and 2007, respectively)
|
|
|
4,688,598
|
|
|
|
2,491,269
|
|
|
|
6,414,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments (cost: $82,000,170, $73,589,433, and
$68,818,651 as of September 30, 2009, December 31,
2008 and 2007, respectively)
|
|
|
68,117,738
|
|
|
|
66,451,588
|
|
|
|
65,563,297
|
|
Marketable securities and idle funds investments (cost:
$8,143,707 as of September 30, 2009)
|
|
|
8,271,411
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
5,420,353
|
|
|
|
2,211,813
|
|
|
|
617,277
|
|
Other assets
|
|
|
695,312
|
|
|
|
810,867
|
|
|
|
674,371
|
|
Deferred financing costs (net of accumulated amortization of
$418,102, $249,893, and $84,715 as of September 30, 2009,
December 31, 2008 and 2007, respectively)
|
|
|
2,076,898
|
|
|
|
1,760,107
|
|
|
|
1,377,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
84,581,712
|
|
|
$
|
71,234,375
|
|
|
$
|
68,232,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES, MEMBERS EQUITY AND PARTNERS
CAPITAL
|
SBIC debentures
|
|
$
|
70,000,000
|
|
|
$
|
50,000,000
|
|
|
$
|
39,800,000
|
|
Bank line of credit
|
|
|
|
|
|
|
|
|
|
|
3,000,000
|
|
Interest payable
|
|
|
285,037
|
|
|
|
1,074,330
|
|
|
|
735,225
|
|
Accounts payable and other liabilities
|
|
|
168,722
|
|
|
|
201,237
|
|
|
|
72,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
70,453,759
|
|
|
|
51,275,567
|
|
|
|
43,607,308
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
Members equity (General Partner)
|
|
|
(496,341
|
)
|
|
|
(496,341
|
)
|
|
|
(368,290
|
)
|
Limited Partners capital
|
|
|
14,624,294
|
|
|
|
20,455,149
|
|
|
|
24,993,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total members equity and partners capital
|
|
|
14,127,953
|
|
|
|
19,958,808
|
|
|
|
24,625,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, members equity and partners
capital
|
|
$
|
84,581,712
|
|
|
$
|
71,234,375
|
|
|
$
|
68,232,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements
S-74
MAIN
STREET CAPITAL II, LP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
INVESTMENT INCOME:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest, fee and dividend income
|
|
$
|
6,487,873
|
|
|
$
|
6,598,918
|
|
|
$
|
8,962,776
|
|
|
$
|
6,490,402
|
|
Interest from marketable securities, idle funds and other
|
|
|
200,186
|
|
|
|
105,354
|
|
|
|
139,801
|
|
|
|
177,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment income
|
|
|
6,688,059
|
|
|
|
6,704,272
|
|
|
|
9,102,577
|
|
|
|
6,667,588
|
|
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management fees to affiliate
|
|
|
(2,493,900
|
)
|
|
|
(2,493,900
|
)
|
|
|
(3,325,200
|
)
|
|
|
(2,556,300
|
)
|
Interest
|
|
|
(2,924,791
|
)
|
|
|
(2,461,549
|
)
|
|
|
(3,319,480
|
)
|
|
|
(1,483,282
|
)
|
General and administrative
|
|
|
(118,219
|
)
|
|
|
(134,627
|
)
|
|
|
(178,198
|
)
|
|
|
(152,977
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
(5,536,910
|
)
|
|
|
(5,090,076
|
)
|
|
|
(6,822,878
|
)
|
|
|
(4,192,559
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INVESTMENT INCOME (LOSS)
|
|
|
1,151,149
|
|
|
|
1,614,196
|
|
|
|
2,279,699
|
|
|
|
2,475,029
|
|
NET REALIZED GAIN (LOSS) FROM INVESTMENTS:
|
|
|
474,880
|
|
|
|
787,750
|
|
|
|
(1,973,970
|
)
|
|
|
953,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET REALIZED INCOME (LOSS)
|
|
|
1,626,029
|
|
|
|
2,401,946
|
|
|
|
305,729
|
|
|
|
3,428,363
|
|
NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) FROM
INVESTMENTS:
|
|
|
(6,616,884
|
)
|
|
|
(3,347,699
|
)
|
|
|
(3,882,491
|
)
|
|
|
(4,005,154
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN MEMBERS EQUITY AND
PARTNERS CAPITAL RESULTING FROM OPERATIONS
|
|
$
|
(4,990,855
|
)
|
|
$
|
(945,753
|
)
|
|
$
|
(3,576,762
|
)
|
|
$
|
(576,791
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements
S-75
MAIN
STREET CAPITAL II, LP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Members Equity
|
|
|
Limited Partners
|
|
|
|
|
|
|
(General Partner)
|
|
|
Capital
|
|
|
Total
|
|
|
Balances at December 31, 2006
|
|
$
|
242,103
|
|
|
$
|
22,007,347
|
|
|
$
|
22,249,450
|
|
Capital contributions
|
|
|
|
|
|
|
6,142,668
|
|
|
|
6,142,668
|
|
Distributions
|
|
|
(492,792
|
)
|
|
|
(2,696,963
|
)
|
|
|
(3,189,755
|
)
|
Net decrease resulting from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
503,788
|
|
|
|
1,971,241
|
|
|
|
2,475,029
|
|
Net realized gain from investments
|
|
|
194,111
|
|
|
|
759,223
|
|
|
|
953,334
|
|
Net change in unrealized depreciation from investments
|
|
|
(815,500
|
)
|
|
|
(3,189,654
|
)
|
|
|
(4,005,154
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2007
|
|
|
(368,290
|
)
|
|
|
24,993,862
|
|
|
|
24,625,572
|
|
Distributions
|
|
|
(3,066
|
)
|
|
|
(1,086,936
|
)
|
|
|
(1,090,002
|
)
|
Net decrease resulting from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
462,192
|
|
|
|
1,817,507
|
|
|
|
2,279,699
|
|
Net realized loss from investments
|
|
|
(400,488
|
)
|
|
|
(1,573,482
|
)
|
|
|
(1,973,970
|
)
|
Net change in unrealized depreciation from investments
|
|
|
(186,689
|
)
|
|
|
(3,695,802
|
)
|
|
|
(3,882,491
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2008
|
|
|
(496,341
|
)
|
|
|
20,455,149
|
|
|
|
19,958,808
|
|
Distributions (unaudited)
|
|
|
(3,894
|
)
|
|
|
(836,106
|
)
|
|
|
(840,000
|
)
|
Net decrease resulting from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (unaudited)
|
|
|
233,360
|
|
|
|
917,789
|
|
|
|
1,151,149
|
|
Net realized loss from investments (unaudited)
|
|
|
96,346
|
|
|
|
378,534
|
|
|
|
474,880
|
|
Net change in unrealized depreciation from investments
(unaudited)
|
|
|
(325,812
|
)
|
|
|
(6,291,072
|
)
|
|
|
(6,616,884
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at September 30, 2009 (Unaudited)
|
|
$
|
(496,341
|
)
|
|
$
|
14,624,294
|
|
|
$
|
14,127,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements
S-76
MAIN
STREET CAPITAL II, LP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in net assets resulting from operations:
|
|
$
|
(4,990,855
|
)
|
|
$
|
(945,753
|
)
|
|
$
|
(3,576,762
|
)
|
|
$
|
(576,791
|
)
|
Adjustments to reconcile net decrease in net assets resulting
from operations to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized depreciation from investments
|
|
|
6,616,884
|
|
|
|
3,347,699
|
|
|
|
3,882,491
|
|
|
|
4,005,154
|
|
Net realized (gain) loss from investments
|
|
|
(474,880
|
)
|
|
|
(787,750
|
)
|
|
|
1,973,970
|
|
|
|
(953,334
|
)
|
Accretion of unearned income
|
|
|
(434,251
|
)
|
|
|
(884,212
|
)
|
|
|
(996,918
|
)
|
|
|
(388,406
|
)
|
Net
payment-in-kind
interest accrual
|
|
|
(343,972
|
)
|
|
|
(335,176
|
)
|
|
|
(310,345
|
)
|
|
|
(353,154
|
)
|
Amortization of deferred financing costs
|
|
|
168,209
|
|
|
|
122,428
|
|
|
|
165,178
|
|
|
|
44,455
|
|
Deferred debt origination fees received and other
|
|
|
(143,976
|
)
|
|
|
131,049
|
|
|
|
282,909
|
|
|
|
885,346
|
|
Changes in other assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
75,555
|
|
|
|
165,749
|
|
|
|
(96,497
|
)
|
|
|
(445,081
|
)
|
Interest payable
|
|
|
(789,293
|
)
|
|
|
(469,762
|
)
|
|
|
339,105
|
|
|
|
646,466
|
|
Accounts payable and other liabilities
|
|
|
(32,515
|
)
|
|
|
29,016
|
|
|
|
129,154
|
|
|
|
(28,203
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(349,094
|
)
|
|
|
373,288
|
|
|
|
1,792,285
|
|
|
|
2,836,452
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in portfolio companies
|
|
|
(10,134,167
|
)
|
|
|
(11,138,061
|
)
|
|
|
(20,338,062
|
)
|
|
|
(48,143,082
|
)
|
Investments in marketable securities and idle funds investments
|
|
|
(16,646,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from marketable securities and idle funds investments
|
|
|
8,500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments received on loans and debt securities
|
|
|
3,162,801
|
|
|
|
13,610,251
|
|
|
|
13,993,665
|
|
|
|
2,474,446
|
|
Proceeds from sale of equity securities and related notes
|
|
|
|
|
|
|
287,000
|
|
|
|
584,000
|
|
|
|
1,195,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(15,117,366
|
)
|
|
|
2,759,190
|
|
|
|
(5,760,397
|
)
|
|
|
(44,473,636
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from partners capital contributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,140,611
|
|
Distributions to members and partners
|
|
|
(840,000
|
)
|
|
|
(849,999
|
)
|
|
|
(1,090,002
|
)
|
|
|
(3,187,698
|
)
|
Proceeds from issuance of SBIC debentures
|
|
|
20,000,000
|
|
|
|
10,200,000
|
|
|
|
10,200,000
|
|
|
|
33,200,000
|
|
Proceeds from bank line of credit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000,000
|
|
Payment of bank line of credit
|
|
|
|
|
|
|
(3,000,000
|
)
|
|
|
(3,000,000
|
)
|
|
|
|
|
Payment of deferred loan costs and SBIC debenture fees
|
|
|
(485,000
|
)
|
|
|
(547,350
|
)
|
|
|
(547,350
|
)
|
|
|
(1,105,100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
18,675,000
|
|
|
|
5,802,651
|
|
|
|
5,562,648
|
|
|
|
38,047,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
3,208,540
|
|
|
|
8,935,129
|
|
|
|
1,594,536
|
|
|
|
(3,589,371
|
)
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
|
|
2,211,813
|
|
|
|
617,277
|
|
|
|
617,277
|
|
|
|
4,206,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
|
$
|
5,420,353
|
|
|
$
|
9,552,406
|
|
|
$
|
2,211,813
|
|
|
$
|
617,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements
S-77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio Company/Type of Investment(1)
|
|
Industry
|
|
Principal(5)
|
|
|
Cost(5)
|
|
|
Fair Value
|
|
|
Control Investments(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ceres Management, LLC (Lambs)
|
|
Aftermarket Automotive
|
|
|
|
|
|
|
|
|
|
|
|
|
14% Secured Debt (Maturity May 31, 2013)
|
|
Services Chain
|
|
$
|
1,600,000
|
|
|
$
|
1,574,413
|
|
|
$
|
1,574,413
|
|
Class B Member Units (Non-voting)
|
|
|
|
|
|
|
|
|
105,001
|
|
|
|
105,001
|
|
Member Units (Fully diluted 28.0%)
|
|
|
|
|
|
|
|
|
800,000
|
|
|
|
740,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,479,414
|
|
|
|
2,419,414
|
|
Gulf Manufacturing, LLC
|
|
Industrial Metal
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime plus 1% Secured Debt (Maturity August 31,
2012)
|
|
Fabrication
|
|
|
1,800,000
|
|
|
|
1,788,798
|
|
|
|
1,800,000
|
|
13% Secured Debt (Maturity August 31, 2012)
|
|
|
|
|
1,800,000
|
|
|
|
1,679,261
|
|
|
|
1,770,000
|
|
Member Units(6) (Fully diluted 27.6%)
|
|
|
|
|
|
|
|
|
708,000
|
|
|
|
3,540,000
|
|
Warrants (Fully diluted 12.6%)
|
|
|
|
|
|
|
|
|
240,000
|
|
|
|
1,620,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,416,059
|
|
|
|
8,730,000
|
|
Jensen Jewelers of Idaho, LLC
|
|
Retail Jewelry
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime Plus 2% Secured Debt (Maturity
November 14, 2011)
|
|
|
|
|
1,566,000
|
|
|
|
1,557,004
|
|
|
|
1,566,000
|
|
13% current/6% PIK Secured Debt (Maturity
November 14, 2011)
|
|
|
|
|
1,576,852
|
|
|
|
1,547,968
|
|
|
|
1,576,852
|
|
Member Units(6) (Fully diluted 36.5%)
|
|
|
|
|
|
|
|
|
564,000
|
|
|
|
435,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,668,972
|
|
|
|
3,577,852
|
|
Mid-Columbia Lumber Products, LLC
|
|
Specialized Lumber Products
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime Plus 1% Secured Debt (Maturity June 30,
2010)
|
|
|
|
|
375,000
|
|
|
|
372,500
|
|
|
|
372,500
|
|
12% Secured Debt (Maturity December 18, 2011)
|
|
|
|
|
3,900,000
|
|
|
|
3,690,378
|
|
|
|
3,690,378
|
|
Member Units (Fully diluted 26.7%)
|
|
|
|
|
|
|
|
|
500,000
|
|
|
|
300,000
|
|
Warrants (Fully diluted 25.5%)
|
|
|
|
|
|
|
|
|
250,000
|
|
|
|
290,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,812,878
|
|
|
|
4,652,878
|
|
The MPI Group, LLC
|
|
Manufacturer of Custom
|
|
|
|
|
|
|
|
|
|
|
|
|
9% Secured Debt (Maturity October 2, 2013)
|
|
Hollow Metal Doors,
|
|
|
200,000
|
|
|
|
198,459
|
|
|
|
198,459
|
|
12% Secured Debt (Maturity October 2, 2013)
|
|
Frames and Accessories
|
|
|
5,000,000
|
|
|
|
4,775,870
|
|
|
|
4,775,870
|
|
Warrants (Fully diluted 47.1%)
|
|
|
|
|
|
|
|
|
895,943
|
|
|
|
623,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,870,272
|
|
|
|
5,597,329
|
|
Universal Scaffolding & Equipment, LLC
|
|
Manufacturer of Scaffolding
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime plus 1% Secured Debt (Maturity August 17,
2012)(7)
|
|
and Shoring Equipment
|
|
|
1,748,250
|
|
|
|
1,736,715
|
|
|
|
1,736,715
|
|
13% current/5% PIK Secured Debt (Maturity
August 17, 2012)
|
|
|
|
|
7,014,135
|
|
|
|
6,923,783
|
|
|
|
44,160
|
|
Member Units (Fully diluted 38.2%)
|
|
|
|
|
|
|
|
|
2,060,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,720,936
|
|
|
|
1,780,875
|
|
Vision Interests, Inc.
|
|
Manufacturer/
|
|
|
|
|
|
|
|
|
|
|
|
|
13% Secured Debt (Maturity June 5, 2012)
|
|
Installer of Commercial
|
|
|
5,640,000
|
|
|
|
5,416,247
|
|
|
|
4,830,000
|
|
Common Stock (Fully diluted 13.4%)
|
|
Signage
|
|
|
|
|
|
|
558,000
|
|
|
|
|
|
Warrants (Fully diluted 16.8%)
|
|
|
|
|
|
|
|
|
240,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,214,247
|
|
|
|
4,830,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Control Investments
|
|
|
|
|
|
|
|
|
38,182,778
|
|
|
|
31,588,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-78
MAIN
STREET CAPITAL II, LP
COMBINED SCHEDULE OF INVESTMENTS
September 30, 2009
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio Company/Type of Investment(1)
|
|
Industry
|
|
Principal(5)
|
|
|
Cost(5)
|
|
|
Fair Value
|
|
|
Affiliate Investments(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advantage Millwork Company, Inc.
|
|
Manufacturer/Distributor
|
|
|
|
|
|
|
|
|
|
|
|
|
12% Secured Debt (Maturity February 5, 2012)
|
|
of Wood Doors
|
|
|
4,600,000
|
|
|
|
4,431,899
|
|
|
|
2,910,000
|
|
Warrants (Fully diluted 18.3%)
|
|
|
|
|
|
|
|
|
146,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,578,651
|
|
|
|
2,910,000
|
|
Carlton Global Resources, LLC
|
|
Processor of
|
|
|
|
|
|
|
|
|
|
|
|
|
13% PIK Secured Debt (Maturity November 15,
2011)
|
|
Industrial Minerals
|
|
|
7,187,915
|
|
|
|
6,942,264
|
|
|
|
|
|
Member Units (Fully diluted 12.8%)
|
|
|
|
|
|
|
|
|
600,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,542,264
|
|
|
|
|
|
California Healthcare Medical Billing, Inc.
|
|
Healthcare Billing and Records
|
|
|
|
|
|
|
|
|
|
|
|
|
12% Secured Debt (Maturity October 17, 2013)
|
|
Management
|
|
|
893,000
|
|
|
|
741,028
|
|
|
|
805,808
|
|
Common Stock (Fully diluted 3.8%)
|
|
|
|
|
|
|
|
|
247,000
|
|
|
|
475,000
|
|
Warrants (Fully diluted 7.6%)
|
|
|
|
|
|
|
|
|
152,000
|
|
|
|
715,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,140,028
|
|
|
|
1,996,475
|
|
CBT Nuggets, LLC
|
|
Produces and Sells
|
|
|
|
|
|
|
|
|
|
|
|
|
14% Secured Debt (Maturity December 31, 2013)
|
|
IT Certification
|
|
|
1,120,000
|
|
|
|
1,082,793
|
|
|
|
1,120,000
|
|
10% Secured Debt (Maturity March 31, 2012)
|
|
Training Videos
|
|
|
610,000
|
|
|
|
610,000
|
|
|
|
610,000
|
|
10% Secured Debt (Maturity March 31, 2010)
|
|
|
|
|
40,000
|
|
|
|
40,000
|
|
|
|
40,000
|
|
Member Units(6) (Fully diluted 16.3%)
|
|
|
|
|
|
|
|
|
199,680
|
|
|
|
926,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,932,473
|
|
|
|
2,696,667
|
|
Condit Exhibits, LLC
|
|
Tradeshow Exhibits/
|
|
|
|
|
|
|
|
|
|
|
|
|
13% current/5% PIK Secured Debt (Maturity
July 1, 2013)
|
|
Custom Displays
|
|
|
1,649,230
|
|
|
|
1,624,362
|
|
|
|
1,624,362
|
|
Warrants (Fully diluted 18.8%)
|
|
|
|
|
|
|
|
|
200,000
|
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,824,362
|
|
|
|
1,644,362
|
|
Hawthorne Customs & Dispatch Services, LLC
|
|
Transportation/
|
|
|
|
|
|
|
|
|
|
|
|
|
13% Secured Debt (Maturity January 31, 2011)
|
|
Logistics
|
|
|
275,000
|
|
|
|
264,465
|
|
|
|
264,465
|
|
Member Units(6) (Fully diluted 14.8%)
|
|
|
|
|
|
|
|
|
137,500
|
|
|
|
280,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
401,965
|
|
|
|
544,465
|
|
Indianapolis Aviation Partners, LLC
|
|
FBO/Aviation Support Services
|
|
|
|
|
|
|
|
|
|
|
|
|
12% Secured Debt (Maturity September 15, 2014)
|
|
|
|
|
1,880,000
|
|
|
|
1,692,838
|
|
|
|
1,692,838
|
|
Warrants (Fully diluted 12.1%)
|
|
|
|
|
|
|
|
|
451,714
|
|
|
|
451,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,144,552
|
|
|
|
2,144,552
|
|
Lighting Unlimited, LLC
|
|
Commercial and Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime Plus 1% Secured Debt (Maturity August 22,
2012)(7)
|
|
Lighting Products and
|
|
|
1,233,333
|
|
|
|
1,225,742
|
|
|
|
1,225,742
|
|
14% Secured Debt (Maturity August 22, 2012)
|
|
Design Services
|
|
|
1,600,000
|
|
|
|
1,545,081
|
|
|
|
1,545,081
|
|
Warrants (Fully diluted 15.0%)
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,820,823
|
|
|
|
2,820,823
|
|
S-79
MAIN
STREET CAPITAL II, LP
COMBINED SCHEDULE OF INVESTMENTS
September 30, 2009
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio Company/Type of Investment(1)
|
|
Industry
|
|
Principal(5)
|
|
|
Cost(5)
|
|
|
Fair Value
|
|
|
Olympus Building Services, Inc.
|
|
Custodial/Facilities
|
|
|
|
|
|
|
|
|
|
|
|
|
12% Secured Debt (Maturity March 27, 2014)
|
|
Services
|
|
|
1,260,000
|
|
|
|
1,143,600
|
|
|
|
1,220,000
|
|
Warrants (Fully diluted 9.0%)
|
|
|
|
|
|
|
|
|
100,000
|
|
|
|
266,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,243,600
|
|
|
|
1,486,667
|
|
OMi Holdings, Inc.
|
|
Manufacturer of
|
|
|
|
|
|
|
|
|
|
|
|
|
12% Secured Debt (Maturity April 1, 2013)
|
|
Overhead Cranes
|
|
|
4,228,000
|
|
|
|
4,193,827
|
|
|
|
4,193,827
|
|
Common Stock (Fully diluted 19.2%)
|
|
|
|
|
|
|
|
|
600,000
|
|
|
|
260,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,793,827
|
|
|
|
4,453,827
|
|
Schneider Sales Management, LLC
|
|
Sales Consulting
|
|
|
|
|
|
|
|
|
|
|
|
|
13% Secured Debt (Maturity October 15, 2013)
|
|
and Training
|
|
|
1,320,000
|
|
|
|
1,271,131
|
|
|
|
1,271,131
|
|
Warrants (Fully diluted 8.0%)
|
|
|
|
|
|
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,301,131
|
|
|
|
1,271,131
|
|
Thermal & Mechanical Equipment, LLC
|
|
Heat Exchange/Filtration
|
|
|
|
|
|
|
|
|
|
|
|
|
13% current/5% PIK Secured Debt (Maturity
September 25, 2014)
|
|
Products and Services
|
|
|
2,201,833
|
|
|
|
2,158,268
|
|
|
|
2,158,268
|
|
Prime plus 2% Secured Debt (Maturity
September 25, 2014)(7)
|
|
|
|
|
700,000
|
|
|
|
693,090
|
|
|
|
693,090
|
|
Warrants (Fully diluted 20.0%)
|
|
|
|
|
|
|
|
|
400,000
|
|
|
|
400,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,251,358
|
|
|
|
3,251,358
|
|
Walden Smokey Point, Inc.
|
|
Specialty Transportation/
|
|
|
|
|
|
|
|
|
|
|
|
|
14% current/4% PIK Secured Debt (Maturity
December 30, 2013)
|
|
Logistics
|
|
|
3,297,422
|
|
|
|
3,238,590
|
|
|
|
3,238,590
|
|
Common Stock (Fully diluted 5.0%)
|
|
|
|
|
|
|
|
|
400,000
|
|
|
|
600,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,638,590
|
|
|
|
3,838,590
|
|
Zieglers NYPD, LLC
|
|
Casual Restaurant Group
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime plus 2% Secured Debt (Maturity October 1,
2013)(7)
|
|
|
|
|
400,000
|
|
|
|
396,660
|
|
|
|
396,660
|
|
13% current/5% PIK Secured Debt (Maturity
October 1, 2013)
|
|
|
|
|
1,872,362
|
|
|
|
1,841,519
|
|
|
|
1,841,519
|
|
Warrants (Fully diluted 19.0%)
|
|
|
|
|
|
|
|
|
240,000
|
|
|
|
240,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,478,179
|
|
|
|
2,478,179
|
|
Other
|
|
|
|
|
|
|
|
|
303,696
|
|
|
|
303,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Affiliate Investments
|
|
|
|
|
|
|
|
|
39,395,499
|
|
|
|
31,840,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-80
MAIN
STREET CAPITAL II, LP
COMBINED SCHEDULE OF INVESTMENTS
September 30, 2009
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio Company/Type of Investment(1)
|
|
Industry
|
|
Principal(5)
|
|
|
Cost(5)
|
|
|
Fair Value
|
|
|
Non-Control/Non-Affiliate Investments(4):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Audio Messaging Solutions, LLC
|
|
Audio Messaging
|
|
|
|
|
|
|
|
|
|
|
|
|
12% Secured Debt (Maturity May 8, 2014)
|
|
Services
|
|
|
2,273,600
|
|
|
|
2,096,995
|
|
|
|
2,096,995
|
|
Warrants (Fully diluted 3.4%)
|
|
|
|
|
|
|
|
|
143,360
|
|
|
|
253,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,240,355
|
|
|
|
2,350,329
|
|
Compact Power Equipment Centers, LLC
|
|
Light to Medium Duty
|
|
|
|
|
|
|
|
|
|
|
|
|
12% Secured Debt (Maturity September 23, 2014)
|
|
Equipment Rental
|
|
|
211,765
|
|
|
|
211,765
|
|
|
|
211,765
|
|
Member Units (Fully diluted 4.6%)
|
|
|
|
|
|
|
|
|
458
|
|
|
|
458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
212,223
|
|
|
|
212,223
|
|
East Teak Fine Hardwoods, Inc.
|
|
Hardwood Products
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock (Fully diluted 1.8%)
|
|
|
|
|
|
|
|
|
70,000
|
|
|
|
199,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
KBK Industries, LLC
|
|
Specialty Manufacturer
|
|
|
|
|
|
|
|
|
|
|
|
|
14% Secured Debt (Maturity January 23, 2011)
|
|
of Oilfield and
|
|
|
1,312,500
|
|
|
|
1,274,176
|
|
|
|
1,274,176
|
|
8% Secured Debt (Maturity March 1, 2010)
|
|
Industrial Products
|
|
|
62,500
|
|
|
|
62,500
|
|
|
|
62,500
|
|
8% Secured Debt (Maturity March 31, 2010)
|
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
150,000
|
|
Member Units(6) (Fully diluted 4.8%)
|
|
|
|
|
|
|
|
|
62,500
|
|
|
|
90,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,549,176
|
|
|
|
1,576,676
|
|
Support Systems Homes, Inc.
|
|
Manages Substance
|
|
|
|
|
|
|
|
|
|
|
|
|
15% Secured Debt (Maturity August 21, 2018)
|
|
Abuse Treatment Centers
|
|
|
350,139
|
|
|
|
350,139
|
|
|
|
350,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Non-Control/Non-Affiliate Investments
|
|
|
|
|
|
|
|
|
4,421,893
|
|
|
|
4,688,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Portfolio Investments, September 30, 2009
|
|
|
|
|
|
|
|
$
|
82,000,170
|
|
|
$
|
68,117,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable Securities and Idle Funds Investments
|
|
Investments in Secured
|
|
|
|
|
|
|
|
|
|
|
|
|
Apria Healthcare Group Inc. Senior Secured Notes
|
|
Debt Investments and
|
|
$
|
4,800,000
|
|
|
$
|
4,893,707
|
|
|
$
|
5,021,411
|
|
11.25% (Maturity November 1, 2014)
|
|
Certificates of Deposit
|
|
|
|
|
|
|
|
|
|
|
|
|
1.65% Certificate of Deposit (Maturity
December 11, 2009)
|
|
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
1.15% Certificate of Deposit (Maturity
December 7, 2009)
|
|
|
|
|
2,250,000
|
|
|
|
2,250,000
|
|
|
|
2,250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,143,707
|
|
|
$
|
8,271,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Debt investments are generally income producing. Equity and
warrants are non-income producing, unless otherwise noted. |
|
(2) |
|
Controlled investments are defined by the Investment Company
Act of 1940, as amended (1940 Act) as investments in
which more than 25% of the voting securities are owned or where
the ability to nominate greater than 50% of the board
representation is maintained. |
|
(3) |
|
Affiliate investments are defined by the 1940 Act as
investments in which between 5% and 25% of the voting securities
are owned. |
|
(4) |
|
Non-Control/Non-Affiliate investments are defined by the 1940
Act as investments that are neither Control Investments nor
Affiliate Investments. |
|
(5) |
|
Principal is net of prepayments. Cost is net of prepayments
and accumulated unearned income. |
|
(6) |
|
Income producing through payment of dividends or
distributions. |
|
(7) |
|
Subject to contractual minimum interest rates. |
S-81
MAIN
STREET CAPITAL II, LP
COMBINED
SCHEDULE OF INVESTMENTS
December 31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio Company/Type of Investment(1)
|
|
Industry
|
|
Principal(5)
|
|
|
Cost(5)
|
|
|
Fair Value
|
|
|
Control Investments(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CBT Nuggets, LLC
|
|
Produces and Sells
|
|
|
|
|
|
|
|
|
|
|
|
|
14% Secured Debt (Maturity June 1, 2011)
|
|
IT Certification
|
|
$
|
1,120,000
|
|
|
$
|
1,068,861
|
|
|
$
|
1,120,000
|
|
10% Secured Debt (Maturity December 31, 2009)
|
|
Training Videos
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
100,000
|
|
Member Units(6) (Fully diluted 19.4%)
|
|
|
|
|
|
|
|
|
288,000
|
|
|
|
1,083,333
|
|
Warrants (Fully diluted 7.0%)
|
|
|
|
|
|
|
|
|
48,000
|
|
|
|
333,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,504,861
|
|
|
|
2,636,666
|
|
Ceres Management, LLC (Lambs)
|
|
Aftermarket Automotive
|
|
|
|
|
|
|
|
|
|
|
|
|
14% Secured Debt (Maturity May 31, 2013)
|
|
Services Chain
|
|
|
1,600,000
|
|
|
|
1,570,654
|
|
|
|
1,570,654
|
|
Member Units (Fully diluted 28.0%)
|
|
|
|
|
|
|
|
|
800,000
|
|
|
|
866,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,370,654
|
|
|
|
2,437,321
|
|
Gulf Manufacturing, LLC
|
|
Industrial Metal
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime plus 1% Secured Debt (Maturity August 31,
2012)
|
|
Fabrication
|
|
|
1,800,000
|
|
|
|
1,786,146
|
|
|
|
1,800,000
|
|
13% Secured Debt (Maturity August 31, 2012)
|
|
|
|
|
2,850,000
|
|
|
|
2,621,665
|
|
|
|
2,820,000
|
|
Member Units(6) (Fully diluted 27.6%)
|
|
|
|
|
|
|
|
|
708,000
|
|
|
|
1,650,000
|
|
Warrants (Fully diluted 12.6%)
|
|
|
|
|
|
|
|
|
240,000
|
|
|
|
825,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,355,811
|
|
|
|
7,095,000
|
|
Jensen Jewelers of Idaho, LLC
|
|
Retail Jewelry
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime Plus 2% Secured Debt (Maturity
November 14, 2011)
|
|
|
|
|
1,566,000
|
|
|
|
1,551,604
|
|
|
|
1,566,000
|
|
13% current/6% PIK Secured Debt (Maturity
November 14, 2011)
|
|
|
|
|
1,506,886
|
|
|
|
1,470,595
|
|
|
|
1,506,886
|
|
Member Units(6) (Fully diluted 36.5%)
|
|
|
|
|
|
|
|
|
564,000
|
|
|
|
570,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,586,199
|
|
|
|
3,642,886
|
|
Mid-Columbia Lumber Products, LLC
|
|
Specialized Lumber Products
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime Plus 1% Secured Debt (Maturity June 30,
2010)
|
|
|
|
|
1,000,000
|
|
|
|
995,000
|
|
|
|
995,000
|
|
12% Secured Debt (Maturity December 18, 2011)
|
|
|
|
|
3,900,000
|
|
|
|
3,630,919
|
|
|
|
3,280,000
|
|
Member Units (Fully diluted 26.7%)
|
|
|
|
|
|
|
|
|
500,000
|
|
|
|
|
|
Warrants (Fully diluted 25.5%)
|
|
|
|
|
|
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,375,919
|
|
|
|
4,275,000
|
|
The MPI Group, LLC
|
|
Manufacturer of Custom
|
|
|
|
|
|
|
|
|
|
|
|
|
9% Secured Debt (Maturity October 2, 2013)
|
|
Hollow Metal Doors,
|
|
|
200,000
|
|
|
|
198,233
|
|
|
|
198,233
|
|
12% Secured Debt (Maturity October 2, 2013)
|
|
Frames and Accessories
|
|
|
5,000,000
|
|
|
|
4,745,134
|
|
|
|
4,745,134
|
|
Warrants (Fully diluted 45.0%)
|
|
|
|
|
|
|
|
|
700,000
|
|
|
|
963,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,643,367
|
|
|
|
5,906,367
|
|
Universal Scaffolding & Equipment, LLC
|
|
Manufacturer of Scaffolding
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime plus 1% Secured Debt (Maturity August 17,
2012)(7)
|
|
and Shoring Equipment
|
|
|
1,831,500
|
|
|
|
1,817,457
|
|
|
|
1,817,457
|
|
13% current/5% PIK Secured Debt (Maturity
August 17, 2012)
|
|
|
|
|
6,984,065
|
|
|
|
6,880,454
|
|
|
|
6,563,078
|
|
Member Units (Fully diluted 38.2%)
|
|
|
|
|
|
|
|
|
2,060,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,758,350
|
|
|
|
8,380,535
|
|
Vision Interests, Inc.
|
|
Manufacturer/
|
|
|
|
|
|
|
|
|
|
|
|
|
13% Secured Debt (Maturity June 5, 2012)
|
|
Installer of Commercial
|
|
|
5,640,000
|
|
|
|
5,368,675
|
|
|
|
5,368,675
|
|
Common Stock (Fully diluted 13.4%)
|
|
Signage
|
|
|
|
|
|
|
558,000
|
|
|
|
630,000
|
|
Warrants (Fully diluted 16.8%)
|
|
|
|
|
|
|
|
|
240,000
|
|
|
|
630,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,166,675
|
|
|
|
6,628,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Control Investments
|
|
|
|
|
|
|
|
|
40,761,836
|
|
|
|
41,002,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-82
MAIN
STREET CAPITAL II, LP
COMBINED
SCHEDULE OF INVESTMENTS
December 31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio Company/Type of Investment(1)
|
|
Industry
|
|
Principal(5)
|
|
|
Cost(5)
|
|
|
Fair Value
|
|
|
Affiliate Investments(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advantage Millwork Company, Inc.
|
|
Manufacturer/Distributor
|
|
|
|
|
|
|
|
|
|
|
|
|
12% Secured Debt (Maturity February 5, 2012)
|
|
of Wood Doors
|
|
|
4,600,000
|
|
|
|
4,400,427
|
|
|
|
4,400,427
|
|
Warrants (Fully diluted 18.3%)
|
|
|
|
|
|
|
|
|
146,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,547,179
|
|
|
|
4,400,427
|
|
Carlton Global Resources, LLC
|
|
Processor of
|
|
|
|
|
|
|
|
|
|
|
|
|
13% PIK Secured Debt (Maturity November 15,
2011)
|
|
Industrial Minerals
|
|
|
7,187,915
|
|
|
|
6,942,264
|
|
|
|
|
|
Member Units (Fully diluted 12.8%)
|
|
|
|
|
|
|
|
|
600,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,542,264
|
|
|
|
|
|
California Healthcare Medical Billing, Inc.
|
|
Healthcare Services
|
|
|
|
|
|
|
|
|
|
|
|
|
12% Secured Debt (Maturity October 17, 2013)
|
|
|
|
|
893,000
|
|
|
|
722,887
|
|
|
|
722,887
|
|
Common Stock (Fully diluted 3.8%)
|
|
|
|
|
|
|
|
|
247,000
|
|
|
|
247,000
|
|
Warrants (Fully diluted 7.6%)
|
|
|
|
|
|
|
|
|
152,000
|
|
|
|
152,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,121,887
|
|
|
|
1,121,887
|
|
Condit Exhibits, LLC
|
|
Tradeshow Exhibits/
|
|
|
|
|
|
|
|
|
|
|
|
|
13% current/5% PIK Secured Debt (Maturity
July 1, 2013)
|
|
Custom Displays
|
|
|
1,538,716
|
|
|
|
1,510,627
|
|
|
|
1,510,627
|
|
Warrants (Fully diluted 18.8%)
|
|
|
|
|
|
|
|
|
200,000
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,710,627
|
|
|
|
1,710,627
|
|
Hawthorne Customs & Dispatch Services, LLC
|
|
Transportation/
|
|
|
|
|
|
|
|
|
|
|
|
|
13% Secured Debt (Maturity January 31, 2011)
|
|
Logistics
|
|
|
400,000
|
|
|
|
383,175
|
|
|
|
383,175
|
|
Member Units(6) (Fully diluted 9.3%)
|
|
|
|
|
|
|
|
|
125,000
|
|
|
|
145,000
|
|
Warrants (Fully diluted 5.5%)
|
|
|
|
|
|
|
|
|
12,500
|
|
|
|
76,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
520,675
|
|
|
|
604,842
|
|
Lighting Unlimited, LLC
|
|
Commercial and Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime Plus 1% Secured Debt (Maturity August 22,
2012)(7)
|
|
Lighting Products and
|
|
|
1,533,333
|
|
|
|
1,521,905
|
|
|
|
1,521,905
|
|
14% Secured Debt (Maturity August 22, 2012)
|
|
|
|
|
1,600,000
|
|
|
|
1,534,366
|
|
|
|
1,534,366
|
|
Warrants (Fully diluted 15.0%)
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,106,271
|
|
|
|
3,106,271
|
|
OMi Holdings, Inc.
|
|
Manufacturer of
|
|
|
|
|
|
|
|
|
|
|
|
|
12% Secured Debt (Maturity April 1, 2013)
|
|
Overhead Cranes
|
|
|
4,440,000
|
|
|
|
4,398,049
|
|
|
|
4,398,049
|
|
Common Stock (Fully diluted 19.2%)
|
|
|
|
|
|
|
|
|
600,000
|
|
|
|
380,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,998,049
|
|
|
|
4,778,049
|
|
Schneider Sales Management, LLC
|
|
Sales Consulting
|
|
|
|
|
|
|
|
|
|
|
|
|
13% Secured Debt (Maturity October 15, 2013)
|
|
and Training
|
|
|
1,320,000
|
|
|
|
1,264,901
|
|
|
|
1,264,901
|
|
Warrants (Fully diluted 8.0%)
|
|
|
|
|
|
|
|
|
30,000
|
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,294,901
|
|
|
|
1,294,901
|
|
Walden Smokey Point, Inc.
|
|
Specialty Transportation/
|
|
|
|
|
|
|
|
|
|
|
|
|
14% current/4% PIK Secured Debt (Maturity
December 30, 2013)
|
|
Logistics
|
|
|
3,200,355
|
|
|
|
3,136,356
|
|
|
|
3,136,356
|
|
Common Stock (Fully diluted 5.0%)
|
|
|
|
|
|
|
|
|
400,000
|
|
|
|
400,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,536,356
|
|
|
|
3,536,356
|
|
Zieglers NYPD, LLC
|
|
Casual Restaurant
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime plus 2% Secured Debt (Maturity October 1,
2013)(7)
|
|
Group
|
|
|
600,000
|
|
|
|
396,159
|
|
|
|
396,159
|
|
13% current/5% PIK Secured Debt (Maturity
October 1, 2013)
|
|
|
|
|
2,704,262
|
|
|
|
1,768,350
|
|
|
|
1,768,350
|
|
Warrants (Fully diluted 19.0%)
|
|
|
|
|
|
|
|
|
240,000
|
|
|
|
240,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,404,509
|
|
|
|
2,404,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Affiliate Investments
|
|
|
|
|
|
|
|
|
30,782,718
|
|
|
|
22,957,869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-83
MAIN
STREET CAPITAL II, LP
COMBINED
SCHEDULE OF INVESTMENTS
December 31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio Company/Type of Investment(1)
|
|
Industry
|
|
Principal(5)
|
|
|
Cost(5)
|
|
|
Fair Value
|
|
|
Non-Control/Non-Affiliate Investments(4):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East Teak Fine Hardwoods, Inc.
|
|
Hardwood Products
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock (Fully diluted 1.8%)
|
|
|
|
|
|
|
|
|
70,000
|
|
|
|
263,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
KBK Industries, LLC
|
|
Specialty Manufacturer
|
|
|
|
|
|
|
|
|
|
|
|
|
14% Secured Debt (Maturity January 23, 2011)
|
|
of Oilfield and
|
|
|
1,312,500
|
|
|
|
1,255,789
|
|
|
|
1,312,500
|
|
8% Secured Debt (Maturity March 1, 2010)
|
|
Industrial Products
|
|
|
156,250
|
|
|
|
156,250
|
|
|
|
156,250
|
|
8% Secured Debt (Maturity March 31, 2009)
|
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
150,000
|
|
Member Units(6) (Fully diluted 4.8%)
|
|
|
|
|
|
|
|
|
62,500
|
|
|
|
258,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,624,539
|
|
|
|
1,877,083
|
|
Support Systems Homes, Inc.
|
|
Manages Substance
|
|
|
|
|
|
|
|
|
|
|
|
|
15% Secured Debt (Maturity August 21, 2018)
|
|
Abuse Treatment Centers
|
|
|
350,340
|
|
|
|
350,340
|
|
|
|
350,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Non-Control/Non-Affiliate Investments
|
|
|
|
|
|
|
|
|
2,044,879
|
|
|
|
2,491,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Portfolio Investments, December 31, 2008
|
|
|
|
|
|
|
|
$
|
73,589,433
|
|
|
$
|
66,451,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Debt investments are generally income producing. Equity and
warrants are non-income producing, unless otherwise noted. |
|
(2) |
|
Controlled investments are defined by the Investment Company
Act of 1940, as amended (1940 Act), as
investments in which more than 25% of the voting securities are
owned or where the ability to nominate greater than 50% of the
board representation is maintained. |
|
(3) |
|
Affiliate investments are defined by the 1940 Act as
investments in which between 5% and 25% of the voting securities
are owned. |
|
(4) |
|
Non-Control/Non-Affiliate investments are defined by the 1940
Act as investments that are neither Control Investments nor
Affiliate Investments. |
|
(5) |
|
Principal is net of prepayments. Cost is net of prepayments
and accumulated unearned income. |
|
(6) |
|
Income producing through payment of dividends or
distributions. |
|
(7) |
|
Subject to contractual minimum interest rates. |
S-84
MAIN
STREET CAPITAL II, LP
COMBINED
SCHEDULE OF INVESTMENTS
December 31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment(1)
|
|
Industry
|
|
Principal(5)
|
|
|
Cost(5)
|
|
|
Fair Value
|
|
|
Control Investments (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CBT Nuggets, LLC
|
|
Produces and Sells
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime plus 2% Secured Debt (Maturity June 1,
2011)
|
|
IT Certification
|
|
$
|
240,000
|
|
|
$
|
222,995
|
|
|
$
|
222,995
|
|
14% Secured Debt (Maturity June 1, 2011)
|
|
Training Videos
|
|
|
1,240,000
|
|
|
|
1,165,343
|
|
|
|
1,165,343
|
|
Member Units (Fully diluted 19.4%)
|
|
|
|
|
|
|
|
|
288,000
|
|
|
|
763,333
|
|
Warrants (Fully diluted 7.0%)
|
|
|
|
|
|
|
|
|
48,000
|
|
|
|
230,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,724,338
|
|
|
|
2,381,671
|
|
Gulf Manufacturing, LLC
|
|
Industrial Metal
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime plus 1% Secured Debt (Maturity August 31,
2012)
|
|
Fabrication
|
|
|
1,800,000
|
|
|
|
1,782,954
|
|
|
|
1,782,954
|
|
13% Secured Debt (Maturity August 31, 2012)
|
|
|
|
|
3,000,000
|
|
|
|
2,713,824
|
|
|
|
2,713,824
|
|
Member Units (Fully diluted 27.6%)
|
|
|
|
|
|
|
|
|
708,000
|
|
|
|
708,000
|
|
Warrants (Fully diluted 12.6%)
|
|
|
|
|
|
|
|
|
240,000
|
|
|
|
375,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,444,778
|
|
|
|
5,579,778
|
|
Jensen Jewelers of Idaho, LLC
|
|
Retail Jewelry
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime Plus 2% Secured Debt (Maturity
November 14, 2011)
|
|
|
|
|
1,800,000
|
|
|
|
1,771,200
|
|
|
|
1,771,200
|
|
13% current/6% PIK Secured Debt (Maturity
November 14, 2011)
|
|
|
|
|
1,604,186
|
|
|
|
1,552,233
|
|
|
|
1,552,233
|
|
Member Units(6) (Fully diluted 37.6%)
|
|
|
|
|
|
|
|
|
564,000
|
|
|
|
1,222,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,887,433
|
|
|
|
4,545,933
|
|
Mid-Columbia Lumber Products, LLC
|
|
Specialized Lumber
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime Plus 1% Secured Debt (Maturity June 30,
2010)
|
|
Products
|
|
|
500,000
|
|
|
|
491,667
|
|
|
|
491,667
|
|
12% Secured Debt (Maturity December 18, 2011)
|
|
|
|
|
3,900,000
|
|
|
|
3,560,413
|
|
|
|
3,400,000
|
|
Member Units (Fully diluted 19.44%)
|
|
|
|
|
|
|
|
|
300,000
|
|
|
|
|
|
Warrants (Fully diluted 28.0%)
|
|
|
|
|
|
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,602,080
|
|
|
|
3,891,667
|
|
The MPI Group, LLC
|
|
Manufacturer of Custom
|
|
|
|
|
|
|
|
|
|
|
|
|
12% Secured Debt (Maturity October 2, 2013)
|
|
Hollow Metal Doors,
|
|
|
5,000,000
|
|
|
|
4,708,461
|
|
|
|
4,708,461
|
|
Warrants (Fully diluted 25.0%)
|
|
Frames and Accessories
|
|
|
|
|
|
|
500,000
|
|
|
|
500,000
|
|
Warrants (Fully diluted 20.0%)
|
|
|
|
|
|
|
|
|
200,000
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,408,461
|
|
|
|
5,408,461
|
|
Universal Scaffolding & Equipment, LLC
|
|
Manufacturer of Scaffolding
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime plus 1% Secured Debt (Maturity August 16,
2012)(7)
|
|
and Shoring Equipment
|
|
|
2,330,999
|
|
|
|
2,309,001
|
|
|
|
2,309,001
|
|
13% current/5% PIK Secured Debt (Maturity
August 16, 2012)
|
|
|
|
|
6,638,627
|
|
|
|
6,514,576
|
|
|
|
6,514,576
|
|
Member Units (Fully Diluted 38.1%)
|
|
|
|
|
|
|
|
|
2,060,438
|
|
|
|
2,128,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,884,015
|
|
|
|
10,952,423
|
|
Vision Interests, Inc.
|
|
Manufacturer/
|
|
|
|
|
|
|
|
|
|
|
|
|
13% Secured Debt (Maturity June 5, 2012)
|
|
Installer of Commercial
|
|
|
5,640,000
|
|
|
|
5,312,493
|
|
|
|
5,312,493
|
|
Common stock (Fully diluted 13.4%)
|
|
Signage
|
|
|
|
|
|
|
558,000
|
|
|
|
558,000
|
|
Warrants (Fully diluted 16.8%)
|
|
|
|
|
|
|
|
|
240,000
|
|
|
|
562,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,110,493
|
|
|
|
6,432,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Control Investments
|
|
|
|
|
|
|
|
|
38,061,598
|
|
|
|
39,192,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-85
MAIN
STREET CAPITAL II, LP
COMBINED
SCHEDULE OF INVESTMENTS
December 31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment(1)
|
|
Industry
|
|
Principal(5)
|
|
|
Cost(5)
|
|
|
Fair Value
|
|
|
Affiliate Investments (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advantage Millwork Company, Inc.
|
|
Manufacturer/Distributor
|
|
|
|
|
|
|
|
|
|
|
|
|
12% Secured Debt (Maturity February 5, 2012)
|
|
of Wood Doors
|
|
|
4,000,000
|
|
|
|
3,781,013
|
|
|
|
3,781,013
|
|
Warrants (Fully diluted 16.3%)
|
|
|
|
|
|
|
|
|
130,720
|
|
|
|
130,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,911,733
|
|
|
|
3,911,733
|
|
Carlton Global Resources, LLC
|
|
Processor of
|
|
|
|
|
|
|
|
|
|
|
|
|
13% PIK Secured Debt (Maturity November 15,
2011)
|
|
Industrial Minerals
|
|
|
7,031,666
|
|
|
|
6,792,264
|
|
|
|
3,903,786
|
|
Member Units (Fully diluted 12.8%)
|
|
|
|
|
|
|
|
|
600,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,392,264
|
|
|
|
3,903,786
|
|
Hawthorne Customs & Dispatch Services, LLC
|
|
Transportation/
|
|
|
|
|
|
|
|
|
|
|
|
|
13% Secured Debt (Maturity January 31, 2011)
|
|
Logistics
|
|
|
450,000
|
|
|
|
425,302
|
|
|
|
425,302
|
|
Member Units(6) (Fully diluted 9.3%)
|
|
|
|
|
|
|
|
|
125,000
|
|
|
|
145,000
|
|
Warrants (Fully diluted 5.5%)
|
|
|
|
|
|
|
|
|
12,500
|
|
|
|
76,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
562,802
|
|
|
|
646,969
|
|
Lighting Unlimited, LLC
|
|
Commercial and Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime Plus 1% Secured Debt (Maturity August 22,
2012)(7)
|
|
Lighting Products and
Design Services
|
|
|
1,900,000
|
|
|
|
1,881,059
|
|
|
|
1,881,059
|
|
14% Secured Debt (Maturity August 22, 2012)
|
|
|
|
|
1,600,000
|
|
|
|
1,521,796
|
|
|
|
1,521,796
|
|
Warrants (Fully diluted 15.0%)
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,452,855
|
|
|
|
3,452,855
|
|
Talens Marine and Fuel, Inc.
|
|
Fuel Supplier Servicing
|
|
|
|
|
|
|
|
|
|
|
|
|
13% Secured Debt (Maturity September 9, 2012)
|
|
Primarily the Marine
|
|
|
7,050,000
|
|
|
|
6,663,288
|
|
|
|
6,663,288
|
|
Warrants (Fully diluted 14.0%)
|
|
Markets
|
|
|
|
|
|
|
262,000
|
|
|
|
262,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,925,288
|
|
|
|
6,925,288
|
|
Wicks N More, LLC
|
|
Manufacturer of
|
|
|
|
|
|
|
|
|
|
|
|
|
12% Secured Debt (Maturity April 26, 2011)
|
|
High-end Candles
|
|
|
2,480,000
|
|
|
|
2,285,667
|
|
|
|
1,114,867
|
|
Member Units (Fully diluted 7.7%)
|
|
|
|
|
|
|
|
|
240,000
|
|
|
|
|
|
Warrants (Fully diluted 14.2%)
|
|
|
|
|
|
|
|
|
140,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,665,667
|
|
|
|
1,114,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Affiliate Investments
|
|
|
|
|
|
|
|
|
24,910,609
|
|
|
|
19,955,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-86
MAIN
STREET CAPITAL II, LP
COMBINED
SCHEDULE OF INVESTMENTS
December 31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment(1)
|
|
Industry
|
|
Principal(5)
|
|
|
Cost(5)
|
|
|
Fair Value
|
|
|
Non-Control/Non-Affiliate Investments (4):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East Teak Fine Hardwoods, Inc.
|
|
Hardwood Products
|
|
|
|
|
|
|
|
|
|
|
|
|
13% Current/5.5% PIK Secured Debt (Maturity
April 13, 2011)
|
|
|
|
|
889,015
|
|
|
|
871,647
|
|
|
|
871,647
|
|
Common Stock (Fully diluted 1.8%)
|
|
|
|
|
|
|
|
|
70,000
|
|
|
|
263,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
941,647
|
|
|
|
1,135,493
|
|
KBK Industries, LLC
|
|
Specialty Manufacturer
|
|
|
|
|
|
|
|
|
|
|
|
|
14% Secured Debt (Maturity January 23, 2011)
|
|
of Oilfield and
|
|
|
1,312,500
|
|
|
|
1,234,310
|
|
|
|
1,234,310
|
|
8% Secured Debt (Maturity July 1, 2009)
|
|
Industrial Products
|
|
|
207,688
|
|
|
|
207,688
|
|
|
|
207,688
|
|
Prime Plus 2% Secured Debt (Maturity January 31, 2008)
|
|
|
|
|
|
|
|
|
25,000
|
|
|
|
228,750
|
|
Member Units(6) (Fully diluted 4.8%)
|
|
|
|
|
|
|
|
|
62,500
|
|
|
|
233,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,529,498
|
|
|
|
1,904,081
|
|
Support Systems Homes, Inc.
|
|
Manages Substance
|
|
|
|
|
|
|
|
|
|
|
|
|
14% Current/4% PIK Secured Debt (Maturity
June 5, 2012)
|
|
Abuse Treatment Centers
|
|
|
2,288,511
|
|
|
|
2,238,737
|
|
|
|
2,238,737
|
|
8% Secured Debt (Maturity June 5, 2012)
|
|
|
|
|
238,332
|
|
|
|
235,521
|
|
|
|
235,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,474,258
|
|
|
|
2,474,258
|
|
Turbine Air Systems, Ltd.
|
|
Commercial and
|
|
|
|
|
|
|
|
|
|
|
|
|
12% Secured Debt (Maturity October 11, 2011)
|
|
Industrial Chilling Systems
|
|
|
1,000,000
|
|
|
|
901,041
|
|
|
|
901,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Non-Control/Non-Affiliate Investments
|
|
|
|
|
|
|
|
|
5,846,444
|
|
|
|
6,414,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Portfolio Investments, December 31, 2007
|
|
|
|
|
|
|
|
$
|
68,818,651
|
|
|
$
|
65,563,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Debt investments are generally income producing. Equity and
warrants are non-income producing, unless otherwise noted. |
|
(2) |
|
Controlled investments are defined by the Investment Company
Act of 1940, as amended (1940 Act), as
investments in which more than 25% of the voting securities are
owned or where the ability to nominate greater than 50% of the
board representation is maintained. |
|
(3) |
|
Affiliate investments are defined by the 1940 Act as
investments in which between 5% and 25% of the voting securities
are owned. |
|
(4) |
|
Non-Control/Non-Affiliate investments are defined by the 1940
Act as investments that are neither Control Investments nor
Affiliate Investments. |
|
(5) |
|
Principal is net of prepayments. Cost is net of prepayments
and accumulated unearned income. |
|
(6) |
|
Income producing through payment of dividends or
distributions. |
|
(7) |
|
Subject to contractual minimum interest rates. |
S-87
|
|
NOTE 1.
|
ORGANIZATION
AND BASIS OF PRESENTATION:
|
Organization
Main Street Capital II, LP (the Fund), a Delaware limited
partnership, was formed on June 30, 2005 for the purpose of
providing private financing to lower middle market companies.
The Fund began capital raising in 2005 and commenced investment
operations in January 2006. The general partner is Main Street
Capital II GP, LLC, a Delaware limited liability company
(the General Partner). The Funds investments are managed
by Main Street Capital Partners, LLC (the Investment Manager).
The General Partner and the Investment Manager are affiliated
through common management.
On January 19, 2006, the Fund was granted a license to
operate as a Small Business Investment Company (SBIC) pursuant
to Section 301(c) of the Small Business Investment Act of
1958, as amended, and the regulations thereunder (the SBIC Act).
As of September 30, 2009 and December 31, 2008 and
2007, the Fund had issued $70,000,000, $50,000,000, and
$39,800,000, respectively, in debentures through the SBIC
program.
Basis
of Presentation
The Funds combined financial statements are prepared in
accordance with U.S. generally accepted accounting
principles (U.S. GAAP). The Funds results
of operations and cash flows for the nine months ended
September 30, 2009 and 2008 and for the years ended
December 31, 2008 and 2007, and financial position as of
September 30, 2009 and December 31, 2008 and 2007, are
presented on a combined basis with the accounts of the General
Partner. The effects of all intercompany transactions between
the Fund and the General Partner have been eliminated. The total
assets of the General Partner after eliminations were immaterial
for all periods presented. Marketable securities and idle
funds investments are classified as financial instruments
and are reported separately on the Funds Combined Balance
Sheets and Combined Schedule of Investments due to the nature of
such investments. To allow for more relevant disclosure of the
Funds core investment portfolio,
core portfolio investments, as used herein, refers
to all of the Funds portfolio investments excluding all
Marketable securities and idle funds investments.
In connection with valuing portfolio investments, marketable
securities and idle funds investments, the Fund adopted the
provisions of the Financial Accounting Standards Board
(FASB) Accounting Standards Codification
(Codification or ASC) 820, Fair Value
Measurements and Disclosures (ASC 820) in the
first quarter of 2008. ASC 820 defines fair value, establishes a
framework for measuring fair value, establishes a fair value
hierarchy based on the quality of inputs used to measure fair
value, and enhances disclosure requirements for fair value
measurements. The Fund accounts for these investments at fair
value.
Under the investment company rules and regulations pursuant to
Article 6 of
Regulation S-X
and the Audit and Accounting Guide for Investment Companies
issued by the American Institute of Certified Public Accountants
(the AICPA Guide), the Fund is precluded from
consolidating portfolio company investments, including those in
which it has a controlling interest, unless the portfolio
company is another investment company. An exception to this
general principle in the AICPA Guide occurs if the Fund owns a
controlled operating company that provides all or substantially
all of its services directly to the Fund or to an investment
company of the Fund. None of the investments made by the Fund
qualify for this exception. Therefore, the Funds portfolio
investments are carried on the balance sheet at fair value, as
discussed further in Note 2, with any adjustments to fair
value recognized as Net Change in Unrealized Appreciation
(Depreciation) from Investments on the Statement of
Operations until the investment is disposed of, resulting in any
gain or loss on exit being recognized as a Net Realized
Gain (Loss) from Investments.
S-88
MAIN
STREET CAPITAL II, LP
Notes to
Combined Financial
Statements (Continued)
Unaudited
Interim Results
The accompanying interim combined balance sheet and schedule of
investments as of September 30, 2009 and the interim
combined statements of operations and cash flows for the nine
months ended September 30, 2009 and 2008, and the interim
combined statement of changes in members equity and
partners capital for the nine months ended
September 30, 2009 are all unaudited interim financial
statements. These unaudited interim financial statements have
been prepared on the same basis as the accompanying annual
audited financial statements and, in the opinion of management,
reflect all adjustments (which include normal, recurring
adjustments) necessary to present fairly the combined accounts
of the Fund and the General Partner for such interim periods.
The interim results as of and for the nine months ended
September 30, 2009 are not necessarily indicative of the
results that may be achieved for the full year ended
December 31, 2009.
Portfolio
Investment Classification
The Fund classifies its portfolio investments in accordance with
the requirements of the 1940 Act. Under the 1940 Act,
Control Investments are defined as investments in
which more than 25% of the voting securities are owned or where
the ability to nominate greater than 50% of the board
representation is maintained. Under the 1940 Act,
Affiliate Investments are defined as investments in
which between 5% and 25% of the voting securities are owned.
Under the 1940 Act, Non-Control/Non-Affiliate
Investments are defined as investments that are neither
Control investments nor Affiliate investments.
|
|
NOTE 2.
|
SIGNIFICANT
ACCOUNTING POLICIES:
|
Valuation
of Investments
The Fund accounts for its core portfolio investments at fair
value. As a result, the Fund adopted the provisions of ASC 820,
Fair Value Measurements and Disclosures, in the first
quarter of 2008. ASC 820 defines fair value, establishes a
framework for measuring fair value, establishes a fair value
hierarchy based on the quality of inputs used to measure fair
value and enhances disclosure requirements for fair value
measurements. ASC 820 requires the Fund to assume that the
portfolio investment is to be sold in the principal market to
independent market participants, or in the absence of a
principal market, in the most advantageous market, which may be
a hypothetical market. Market participants are defined as buyers
and sellers in the principal or most advantageous market that
are independent, knowledgeable, and willing and able to
transact. With the adoption of this statement, the Fund
incorporated the income approach to estimate the fair value of
its core portfolio debt investments principally using a
yield-to-maturity
model. The adoption of ASC 820 did not have a significant impact
on the core investment portfolio fair value determination.
The Funds core business plan calls for it to invest
primarily in illiquid securities issued by private companies.
These core investments may be subject to restrictions on resale
and will generally have no established trading market. As a
result, the Fund determines in good faith the fair value of its
portfolio investments pursuant to a valuation policy in
accordance with ASC 820 and a valuation process approved by the
General Partner and in accordance with the 1940 Act. The Fund
reviews external events, including private mergers, sales and
acquisitions involving comparable companies, and includes these
events in the valuation process. The Funds valuation
policy and process are intended to provide a consistent basis
for determining the fair value of the portfolio.
For valuation purposes, control investments are composed of
equity and debt securities for which the Fund has a controlling
interest in the portfolio company or has the ability to nominate
a majority of the portfolio companys board of directors.
Market quotations are generally not readily available for the
Funds control investments. As a result, the Fund
determines the fair value of control investments using a
combination of market and income approaches. Under the market
approach, the Fund will typically use the enterprise value
methodology to determine the fair value of these investments.
The enterprise value is the fair value at which
S-89
MAIN
STREET CAPITAL II, LP
Notes to
Combined Financial
Statements (Continued)
an enterprise could be sold in a transaction between two willing
parties, other than through a forced or liquidation sale.
Typically, private companies are bought and sold based on
multiples of earnings before interest, taxes, depreciation and
amortization, or EBITDA, cash flows, net income, revenues, or in
limited cases, book value. There is no single methodology for
estimating enterprise value. For any one portfolio company,
enterprise value is generally described as a range of values
from which a single estimate of enterprise value is derived. In
estimating the enterprise value of a portfolio company, the Fund
analyzes various factors, including the portfolio companys
historical and projected financial results. The Fund allocates
the enterprise value to investments in order of the legal
priority of the investments. The Fund will also use the income
approach to determine the fair value of these securities, based
on projections of the discounted future free cash flows that the
portfolio company or the debt security will likely generate. The
valuation approaches for the Funds control investments
estimate the value of the investment if it were to sell, or
exit, the investment, assuming the highest and best use of the
investment by market participants. In addition, these valuation
approaches consider the value associated with the Funds
ability to control the capital structure of the portfolio
company, as well as the timing of a potential exit.
For valuation purposes, non-control investments are composed of
debt and equity securities for which the Fund does not have a
controlling interest in the portfolio company, or the ability to
nominate a majority of the portfolio companys board of
directors. Market quotations for the Funds non-control
investments are generally not readily available. For the
Funds non-control investments, the Fund uses a combination
of market and income approaches to value its equity investments
and the income approach to value its debt instruments. For
non-control debt investments, the Fund determines the fair value
primarily using a yield approach that analyzes the discounted
cash flows of interest and principal for the debt security, as
set forth in the associated loan agreements, as well as the
financial position and credit risk of each of these portfolio
investments. The Funds estimate of the expected repayment
date of a debt security is generally the legal maturity date of
the instrument, as the Fund generally intends to hold its loans
to maturity. The yield analysis considers changes in leverage
levels, credit quality, portfolio company performance and other
factors. The Fund will use the value determined by the yield
analysis as the fair value for that security; however, because
of the Funds general intent to hold its loans to maturity,
the fair value will not exceed the face amount of the debt
security. A change in the assumptions that the Fund uses to
estimate the fair value of its debt securities using the yield
analysis could have a material impact on the determination of
fair value. If there is deterioration in credit quality or a
debt security is in workout status, the Fund may consider other
factors in determining the fair value of a debt security,
including the value attributable to the debt security from the
enterprise value of the portfolio company or the proceeds that
would be received in a liquidation analysis.
Due to the inherent uncertainty in the valuation process, the
Funds estimate of fair value may differ materially from
the values that would have been used had a ready market for the
securities existed. In addition, changes in the market
environment, portfolio company performance and other events that
may occur over the lives of the investments may cause the gains
or losses ultimately realized on these investments to be
materially different than the valuations currently assigned. The
Fund determines the fair value of each individual investment and
records changes in fair value as unrealized appreciation or
depreciation.
The Fund believes its investments as of September 30, 2009
and December 31, 2008 and 2007 approximate fair value as of
those dates based on the market in which the Fund operates and
other conditions in existence at those reporting periods.
Use
of Estimates
The preparation of financial statements in conformity with
U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of income and expenses during the period. Additionally, as
explained above, the financial statements include portfolio
investments
S-90
MAIN
STREET CAPITAL II, LP
Notes to
Combined Financial
Statements (Continued)
whose values have been estimated by the General Partner in the
absence of readily ascertainable market values. Because of the
inherent uncertainty of the valuations, those estimated values
may differ significantly from the values that would have been
used had a readily available market for the investments existed,
and it is reasonably possible that the differences could be
material.
Cash
and Cash Equivalents
Cash and cash equivalents consist of highly liquid investments
with an original maturity of three months or less.
Partner
Capital Contributions
Partner contributions are recognized when the Fund has received
the amounts called against the partners capital commitment.
Interest
and Dividend Income
Interest and dividend income is recorded on the accrual basis to
the extent that such amounts are expected to be collected.
Dividend income is recorded as dividends are declared or at the
point an obligation exists for the portfolio company to make a
distribution. In accordance with the valuation policy, accrued
interest and dividend income is evaluated periodically for
collectibility. When a loan or debt security becomes
90 days or more past due, and if the Fund otherwise does
not expect the debtor to be able to service all of its debt or
other obligations, the Fund will generally place the loan or
debt security on non-accrual status and cease recognizing
interest income on that loan or debt security until the borrower
has demonstrated the ability and intent to pay contractual
amounts due. If a loan or debt securitys status
significantly improves regarding ability to service the debt or
other obligations, or if a loan or debt security is fully
impaired or written off, it will be removed from non-accrual
status.
While not significant to its total core portfolio, the Fund
holds debt instruments in its core investment portfolio that
contain
payment-in-kind
(PIK) interest provisions. The PIK interest,
computed at the contractual rate specified in each debt
agreement, is added to the principal balance of the debt and is
recorded as interest income. Thus, the actual collection of this
interest may be deferred until the time of debt principal
repayment.
As of September 30, 2009, the Fund had two investments on
non-accrual status, which comprised approximately 6.9% of the
core investment portfolio at fair value. As of December 31,
2008, the Fund had no investments on non-accrual status. As of
December 31, 2007, the Fund had two investments on
non-accrual status, which comprised approximately 7.7% of the
core investment portfolio at fair value.
S-91
MAIN
STREET CAPITAL II, LP
Notes to
Combined Financial
Statements (Continued)
Deferred
Financing Costs
Deferred financing costs consist of SBIC Debenture commitment
fees and SBIC Debenture leverage fees which have been
capitalized and amortized into interest expense over the life of
the related debt. Deferred financing costs balances as of
September 30, 2009 and December 31, 2008 and 2007 are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
SBIC Debenture Commitment Fees
|
|
$
|
800,000
|
|
|
$
|
800,000
|
|
|
$
|
500,000
|
|
SBIC Debenture Leverage Fees
|
|
|
1,695,000
|
|
|
|
1,210,000
|
|
|
|
962,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
2,495,000
|
|
|
|
2,010,000
|
|
|
|
1,462,650
|
|
Less Accumulated Amortization
|
|
|
(418,102
|
)
|
|
|
(249,893
|
)
|
|
|
(84,715
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,076,898
|
|
|
$
|
1,760,107
|
|
|
$
|
1,377,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated aggregate amortization expense for each of the five
years succeeding December 31, 2008 and thereafter is as
follows:
|
|
|
|
|
|
|
Estimated
|
Year Ending December 31,
|
|
Amortization
|
|
2009
|
|
$
|
228,084
|
|
2010
|
|
|
247,000
|
|
2011
|
|
|
249,500
|
|
2012
|
|
|
249,500
|
|
2013
|
|
|
249,500
|
|
2014 and thereafter
|
|
|
1,021,523
|
|
Fee
Income Structuring and Advisory
The Fund may periodically provide services, including
structuring and advisory services, to its portfolio companies.
For services that are separately identifiable and evidence
exists to substantiate fair value, income is recognized as
earned, which is generally when the investment or other
applicable transaction closes. Fees received in connection with
debt financing transactions for services that do not meet these
criteria are treated as debt origination fees and are accreted
into interest income over the life of the financing.
Unearned
Income Debt Origination Fees and Original Issue
Discount
The Fund capitalizes upfront debt origination fees received in
connection with financings and reflects such fees as unearned
income netted against investments. The Fund will also capitalize
and offset direct loan origination costs against the origination
fees received. The unearned income from the fees, net of debt
origination costs, is accreted into interest income based on the
effective interest method over the life of the financing.
In connection with its debt investments, the Fund sometimes
receives nominal cost warrants (nominal cost equity)
that are valued as part of the negotiation process with the
particular portfolio company. When the Fund receives nominal
cost equity, the Fund allocates its cost basis in its investment
between its debt securities and its nominal cost equity at the
time of origination. Any resulting discount from recording the
debt is reflected as unearned income, which is netted against
the investment, and accreted into interest income based on the
effective interest method over the life of the debt.
S-92
MAIN
STREET CAPITAL II, LP
Notes to
Combined Financial
Statements (Continued)
Income
Taxes
The Fund is taxed under the partnership provisions of the
Internal Revenue Code. Under these provisions of the Code, the
General Partner and Limited Partners are responsible for
reporting their share of the Partnerships taxable income
or loss on their income tax returns. Accordingly, the Fund is
not subject to Federal or State income taxes.
Net
Realized Gains or Losses from Investments and Net Change in
Unrealized Appreciation or Depreciation from
Investments
Realized gains or losses are measured by the difference between
the net proceeds from the sale or redemption of an investment
and the cost basis of the investment, without regard to
unrealized appreciation or depreciation previously recognized,
and includes investments written-off during the period net of
recoveries. Net change in unrealized appreciation or
depreciation from investments reflects the net change in the
valuation of the investment portfolio and financial instruments
pursuant to the Funds valuation guidelines and the
reclassification of any prior period unrealized appreciation or
depreciation on exited investments.
Syndication
Costs
Syndication costs (generally fees and expenses associated with
fund raising) are deducted from partners capital as
incurred.
Recently
Issued Accounting Standards
In October 2008, the FASB amended ASC 820 with ASC
820-10-35-15A,
Financial Assets in a Market That Is Not Active, to
provide an illustrative example of how to determine the fair
value of a financial asset in an inactive market. ASC
820-10-35-15A
does not change the fair value measurement principles previously
set forth. Since adopting ASC 820 in January 2008, the
Funds practices for determining the fair value of its
investment portfolio and financial instruments have been, and
continue to be, consistent with the guidance provided in ASC
820-10-35-15A.
Therefore, the Funds adoption of the update did not affect
its practices for determining the fair value of its investment
portfolio and financial instruments, and its adoption did not
have a material effect on its financial position or results of
operations.
In April 2009, the FASB amended ASC 820 and ASC 825 with ASC
820-10-35,
Subsequent Measurement, and ASC
825-10-65,
Transition and Open Effective Date Information. Both
amendments are effective for reporting periods ending on or
after June 15, 2009. Since adopting ASC 820 and ASC 825 in
January 2008, the Funds practices for determining fair
value and for disclosures about the fair value of its investment
portfolio and financial instruments have been, and continue to
be, consistent with the guidance provided in the amended
pronouncements. Therefore, the Funds adoption of these
updates did not affect its practices for determining the fair
value of its investment portfolio and financial instruments, and
its adoption did not have a material effect on its financial
position or results of operations.
In May 2009, the FASB amended ASC 855, Subsequent Events
with ASC
855-10-50,
Disclosure, which establishes general standards of
accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued or
are available to be issued. ASC
855-10-50
includes a new required disclosure of the date through which an
entity has evaluated subsequent events and is effective for
interim periods or fiscal years ending after June 15, 2009.
The Funds adoption of ASC
855-10-50
did not have a material effect on its financial position or
results of operations.
In June 2009, the FASB issued ASC 105, Generally Accepted
Accounting Principles, which became the single official
source of authoritative, nongovernmental U.S. GAAP, other
than rules and interpretive releases issued by the Securities
and Exchange Commission. The Codification reorganized the
literature and changed the naming mechanism by which topics are
referenced. ASC 105 was effective for the Fund during its
interim
S-93
MAIN
STREET CAPITAL II, LP
Notes to
Combined Financial
Statements (Continued)
period ended September 30, 2009. The Companys
accounting policies and amounts presented in the financial
statements were not impacted by this change.
|
|
NOTE 3.
|
FAIR
VALUE HIERARCHY:
|
In accordance with ASC 820, the Fund has categorized its
portfolio investments, marketable securities and idle funds
investments based on the priority of the inputs to the valuation
technique, into a three-level fair value hierarchy. The fair
value hierarchy gives the highest priority to quoted prices in
active markets for identical investments (Level 1)and the
lowest priority to unobservable inputs (Level 3).
Portfolio investments, marketable securities and idle funds
investments, recorded on the Funds balance sheet are
categorized based on the inputs to the valuation techniques as
follows:
Level 1 Investments whose values are based on
unadjusted quoted prices for identical assets in an active
market that the Fund has the ability to access (examples include
investments in active exchange-traded equity securities and
investments in most U.S. government and agency securities).
Level 2 Investments whose values are based on
quoted prices in markets that are not active or model inputs
that are observable either directly or indirectly for
substantially the full term of the investment. Level 2
inputs include the following:
|
|
|
|
|
Quoted prices for similar assets in active markets (for example,
investments in restricted stock);
|
|
|
|
Quoted prices for identical or similar assets in non-active
markets (for example, investments in thinly traded public
companies);
|
|
|
|
Pricing models whose inputs are observable for substantially the
full term of the investment (for example, market interest rate
indices); and
|
|
|
|
Pricing models whose inputs are derived principally from, or
corroborated by, observable market data through correlation or
other means for substantially the full term of the investment.
|
Level 3 Investments whose values are based on
prices or valuation techniques that require inputs that are both
unobservable and significant to the overall fair value
measurement. These inputs reflect managements own
assumptions about the assumptions a market participant would use
in pricing the investment (for example, investments in illiquid
securities issued by private companies).
As required by ASC 820, when the inputs used to measure fair
value fall within different levels of the hierarchy, the level
within which the fair value measurement is categorized is based
on the lowest level input that is significant to the fair value
measurement in its entirety. For example, a Level 3 fair
value measurement may include inputs that are observable
(Levels 1 and 2) and unobservable (Level 3).
Therefore, gains and losses for such investments categorized
within the Level 3 table below may include changes in fair
value that are attributable to both observable inputs
(Levels 1 and 2) and unobservable inputs (Level 3).
The Fund conducts reviews of fair value hierarchy
classifications on a quarterly basis. Changes in the
observability of valuation inputs may result in a
reclassification for certain investments.
As of September 30, 2009, all of the Funds marketable
securities and idle funds investments consisted primarily of
investments in secured debt investments and certificates of
deposit. The fair value determination for these investments
primarily consisted of observable inputs. As a result, all of
the Funds marketable securities and idle funds investments
were categorized as Level 1 as of September 30, 2009,
with a fair value of $8,271,411. For the years ended
December 31, 2008 and 2007, the Fund had no investments
categorized as marketable securities and idle funds investments.
As of September 30, 2009 and December 31, 2008 and
2007, all of the Funds core portfolio investments
consisted of illiquid securities issued by private companies.
The fair value determination for these core
S-94
MAIN
STREET CAPITAL II, LP
Notes to
Combined Financial
Statements (Continued)
investments primarily consisted of unobservable inputs. As a
result, all of the Funds core portfolio investments were
categorized as Level 3. The fair value determination of
each portfolio investment required one or more of the following
unobservable inputs:
|
|
|
|
|
Financial information obtained from each portfolio company,
including unaudited statements of operations and balance sheets
for the most recent period available as compared to budgeted
numbers;
|
|
|
|
Current and projected financial condition of the portfolio
company;
|
|
|
|
Current and projected ability of the portfolio company to
service its debt obligations;
|
|
|
|
Type and amount of collateral, if any, underlying the investment;
|
|
|
|
Current financial ratios (e.g., fixed charge coverage ratio,
interest coverage ratio, and net debt/EBITDA ratio) applicable
to the investment;
|
|
|
|
Current liquidity of the investment and related financial ratios
(e.g., current ratio and quick ratio);
|
|
|
|
Pending debt or capital restructuring of the portfolio company;
|
|
|
|
Projected operating results of the portfolio company;
|
|
|
|
Current information regarding any offers to purchase the
investment;
|
|
|
|
Current ability of the portfolio company to raise any additional
financing as needed;
|
|
|
|
Changes in the economic environment which may have a material
impact on the operating results of the portfolio company;
|
|
|
|
Internal occurrences that may have an impact (both positive and
negative) on the operating performance of the portfolio company;
|
|
|
|
Qualitative assessment of key management;
|
|
|
|
Contractual rights, obligations or restrictions associated with
the investment; and
|
|
|
|
Other factors deemed relevant.
|
The following table provides a summary of changes in fair value
of the Funds Level 3 portfolio investments for the
nine months ended September 30, 2009 and for the year ended
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes from
|
|
|
Unrealized
|
|
|
|
|
Type of
|
|
December 31, 2008
|
|
|
Accretion of
|
|
|
Redemptions/
|
|
|
New
|
|
|
Unrealized
|
|
|
Appreciation
|
|
|
September 30, 2009
|
|
Investment
|
|
Fair Value
|
|
|
Unearned Income
|
|
|
Repayments(1)
|
|
|
Investments(1)
|
|
|
to Realized
|
|
|
(Depreciation)
|
|
|
Fair Value
|
|
|
Debt
|
|
$
|
56,457,409
|
|
|
$
|
436,542
|
|
|
$
|
(3,362,895
|
)
|
|
$
|
9,773,237
|
|
|
$
|
(163,927
|
)
|
|
$
|
(8,208,063
|
)
|
|
$
|
54,932,303
|
|
Equity
|
|
|
6,494,179
|
|
|
|
|
|
|
|
|
|
|
|
333,336
|
|
|
|
(68,346
|
)
|
|
|
1,495,885
|
|
|
|
8,255,054
|
|
Warrant
|
|
|
3,500,000
|
|
|
|
|
|
|
|
|
|
|
|
1,230,517
|
|
|
|
(349,500
|
)
|
|
|
549,364
|
|
|
|
4,930,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
66,451,588
|
|
|
$
|
436,542
|
|
|
$
|
(3,362,895
|
)
|
|
$
|
11,337,090
|
|
|
$
|
(581,773
|
)
|
|
$
|
(6,162,814
|
)
|
|
$
|
68,117,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes the impact of non-cash conversions. |
S-95
MAIN
STREET CAPITAL II, LP
Notes to
Combined Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes from
|
|
|
Unrealized
|
|
|
|
|
Type of
|
|
December 31, 2007
|
|
|
Accretion of
|
|
|
Redemptions/
|
|
|
New
|
|
|
Unrealized
|
|
|
Appreciation
|
|
|
December 31, 2008
|
|
Investment
|
|
Fair Value
|
|
|
Unearned Income
|
|
|
Repayments(1)
|
|
|
Investments(1)
|
|
|
to Realized
|
|
|
(Depreciation)
|
|
|
Fair Value
|
|
|
Debt
|
|
$
|
57,153,552
|
|
|
$
|
996,918
|
|
|
$
|
(16,464,056
|
)
|
|
$
|
17,994,888
|
|
|
$
|
967,048
|
|
|
$
|
(4,190,941
|
)
|
|
$
|
56,457,409
|
|
Equity
|
|
|
6,022,858
|
|
|
|
|
|
|
|
(240,000
|
)
|
|
|
2,247,000
|
|
|
|
240,000
|
|
|
|
(1,775,679
|
)
|
|
|
6,494,179
|
|
Warrant
|
|
|
2,386,887
|
|
|
|
|
|
|
|
(402,000
|
)
|
|
|
638,032
|
|
|
|
140,000
|
|
|
|
737,081
|
|
|
|
3,500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
65,563,297
|
|
|
$
|
996,918
|
|
|
$
|
(17,106,056
|
)
|
|
$
|
20,879,920
|
|
|
$
|
1,347,048
|
|
|
$
|
(5,229,539
|
)
|
|
$
|
66,451,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes the impact of non-cash conversions. |
|
|
NOTE 4.
|
PARTNERS
CAPITAL CONTRIBUTIONS, ALLOCATIONS AND DISTRIBUTIONS:
|
As of September 30, 2009 and December 31, 2008 and
2007, the Fund had received irrevocable commitments from
investors to contribute capital up to $55,470,000. The members
of the General Partner also made Limited Partner commitments to
the Fund. Through December 31, 2008 and 2007, the Fund also
has received funding from its capital commitments totaling
$27,907,668, representing approximately 50% of private capital
commitments.
Net profits and losses of the Fund are allocated to the General
Partner and Limited Partners as follows:
1. Net Profits:
a. First, to the Partners to the extent and proportion of
net losses allocated.
b. Second, any remaining amounts of net profits, 80% to the
Limited Partners and 20% to the General Partner.
2. Net Losses:
a. First, to the Partners to the extent and in proportion
to net profits previously allocated.
b. Second, the remaining amount of net losses to the
Partners, in proportion to the positive balances in their
respective capital accounts.
3. Not withstanding a) and b):
a. If the capital account of the General Partner or any
Limited Partner is reduced to an amount equal to the aggregate
capital contributions of such Partner, the balance of net losses
will be allocated:
i. First, to the remaining capital accounts of the General
Partner and Limited Partners in proportion to their respective
positive capital accounts until their account balances have been
reduced to zero.
ii. Second, to the General Partner.
b. If net losses have been allocated pursuant to 3.(a).
above, any net profits that are required to be allocated after
such special allocation of net losses as provided pursuant to
3.(a). will be allocated:
i. First, to the General Partner until the special
allocation in 3.(a).ii. is reversed and eliminated.
ii. Second, to the General Partner and Limited Partners
until the effect of any such special allocation of net losses
has been reversed and eliminated.
The Fund is a licensed SBIC and may make distributions of cash
and/or
property only at such times as permitted by the SBIC Act and as
determined under the Partnership Agreement. Under the
Partnership Agreement, the General Partner is entitled to 20% of
the Funds distributions, subject to a clawback
S-96
MAIN
STREET CAPITAL II, LP
Notes to
Combined Financial
Statements (Continued)
provision that requires the General Partner to return an amount
of allocated profits and distributions to the Fund if, and to
the extent that, distributions to the General Partner over the
life of the Fund causes the limited partners of the Fund to
receive cumulative distributions which are less than their share
(approximately 80%) of the cumulative net profits of the Fund.
As of September 30, 2009, the Fund had made distributions
of $5,119,757.
|
|
NOTE 5.
|
MANAGEMENT
AGREEMENT:
|
The Fund has a management agreement with the Investment Manager,
an affiliate of the General Partner due to common management.
The Investment Manager is 100% owned by Main Street Capital
Corporation. The Investment Manager manages the
day-to-day
activities of the Fund. The Investment Manager pays normal
operating expenses, except those specifically required to be
borne by the Fund. The expenses paid by the Investment Manager
include the cost of office space, equipment and personnel
required for the Funds
day-to-day
operations. The expenses that are paid by the Fund include
certain transaction costs incidental to the acquisition and
disposition of investments, management fees to the Investment
Manager, organizational costs, offering costs, SBIC leverage
fees, certain insurance and accounting costs and other expenses
as defined by the Partnership Agreement.
For the five year period following the SBIC license approval, as
compensation for its services, the Fund will pay the Investment
Manager each fiscal quarter in advance, 0.50% of the sum of i)
the Funds Regulatory Capital, as defined, as of the first
day of the fiscal quarter, ii) any Permitted Distribution as
defined by the Partnership Agreement, and iii) for so long as
the Fund is an SBIC, an assumed two tiers (two times) of SBIC
Debenture leverage.
Following the initial five year period after SBIC license
approval, the Fund will pay the Investment Manager, each fiscal
quarter in advance, 0.50% of the Active Investments made by the
Fund, as defined by the Partnership Agreement.
The Fund will not pay any management compensation with respect
to any fiscal year in excess of the amount of management
compensation approved by the U.S. Small Business
Administration (SBA) and in conformance with the Partnership
Agreement. The management fees for the years ended
December 31, 2008 and 2007 were $3,325,200 and $2,556,300,
respectively. The management fees for the nine months ended
September 30, 2009 and 2008 were $2,493,900 for both
respective periods. The fees for 2008 and 2007 exclude $0 and
$526,050, respectively, which were voluntarily waived by the
Investment Manager.
|
|
NOTE 6.
|
CONCENTRATIONS
OF CREDIT RISK:
|
The Fund places its cash in financial institutions, and at
times, such balances may be in excess of the FDIC limit.
As described in Note 1, the Fund has issued SBIC Debentures
through September 30, 2009 totaling $70,000,000. As of
September 30, 2009, the fund has unused commitments from
the SBA to draw down additional leverage in amounts up to
$10,000,000, expiring September 30, 2012. The Fund paid a
1% fee for these commitments. The ability to draw on these
commitments is contingent on the SBAs approval of the
leverage at each draw application and the Funds adherence
to the SBIC regulations. The Fund is subject to annual
compliance examinations by the SBA. There have been no
historical findings resulting from these SBA examinations.
S-97
MAIN
STREET CAPITAL II, LP
Notes to
Combined Financial
Statements (Continued)
SBIC Debentures payable at September 30, 2009 and at
December 31, 2008 and 2007 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
|
|
|
|
|
|
|
Pooling
|
|
|
Maturity
|
|
|
Interest
|
|
|
|
Amount
|
|
|
Date
|
|
|
Date
|
|
|
Rate
|
|
|
|
|
$
|
5,000,000
|
|
|
|
9/27/2006
|
|
|
|
9/1/2016
|
|
|
|
6.48
|
%
|
|
|
|
7,100,000
|
|
|
|
3/28/2007
|
|
|
|
3/1/2017
|
|
|
|
6.32
|
%
|
|
|
|
19,800,000
|
|
|
|
9/26/2007
|
|
|
|
9/1/2017
|
|
|
|
6.43
|
%
|
|
|
|
7,900,000
|
|
|
|
9/26/2007
|
|
|
|
9/1/2017
|
|
|
|
6.47
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
39,800,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,200,000
|
|
|
|
3/26/2008
|
|
|
|
3/1/2018
|
|
|
|
6.38
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
50,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000,000
|
|
|
|
9/22/2009
|
|
|
|
9/1/2019
|
|
|
|
4.95
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2009
|
|
$
|
70,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The stated fixed interest rates include an SBA annual charge on
top of the prevailing market rates. SBIC Debentures are pooled
twice a year, in March and September. Accordingly, the long-term
interest rate of the fundings will be fixed on the applicable
pooling date and the draws will bear a short term interim
financing rate until the applicable pooling date.
SBIC Debentures provide for interest to be paid semi-annually.
For the nine months ended September 30, 2009 and 2008, the
Fund paid $3,530,817 and $2,748,644, respectively, of interest
on the outstanding SBIC Debentures. In 2008 and 2007, the Fund
paid $2,748,644 and $695,003, respectively, of interest on the
outstanding SBIC Debentures. As of September 30, 2009, and
as of December 31, 2008 and 2007, the weighted average
interest rate on the SBIC Debentures was 6.0%, 6.4% and 6.4%,
respectively.
|
|
NOTE 8.
|
BANK LINE
OF CREDIT:
|
The Fund has a $5,000,000 unsecured revolving line of credit
with a financial institution to bridge funding for investments.
The annual interest rate for this line of credit is the prime
rate plus 1%, with a maturity date in April 2010. For the nine
months ended September 30, 2009 and 2008, the Fund paid
interest and financing fees on the line of credit totaling
$15,070 and $60,267, respectively. For the years ended
December 31, 2008 and 2007, the Fund paid interest and
financing fees on the line of credit totaling $66,587 and
$96,389, respectively.
The line of credit is personally guaranteed by the controlling
principals of the General Partner. As of September 30,
2009, the Fund had $0 outstanding balance on the line of credit.
As of December 31, 2008 and 2007, the Fund had a $0 and
$3,000,000, respectively, outstanding balance on the line of
credit.
At September 30, 2009, the Fund had two outstanding
commitments to fund unused revolving loans for up to $600,000 in
total.
S-98
MAIN
STREET CAPITAL II, LP
Notes to
Combined Financial
Statements (Continued)
|
|
NOTE 10.
|
FINANCIAL
HIGHLIGHTS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
Years Ended December 31,
|
|
|
|
2009(1)
|
|
|
2008(1)
|
|
|
2008(1)
|
|
|
2007(1)
|
|
|
Net assets at end of period
|
|
$
|
14,127,953
|
|
|
$
|
22,829,820
|
|
|
$
|
19,958,808
|
|
|
$
|
24,625,572
|
|
Average net assets
|
|
|
17,043,381
|
|
|
|
23,727,696
|
|
|
|
22,292,190
|
|
|
|
23,437,511
|
|
Average outstanding debt
|
|
|
60,000,000
|
|
|
|
46,400,000
|
|
|
|
46,400,000
|
|
|
|
24,700,000
|
|
Ratio of total expenses, excluding interest expense, to average
net assets(2)(3)
|
|
|
15.33
|
%
|
|
|
11.08
|
%
|
|
|
15.72
|
%
|
|
|
11.56
|
%
|
Ratio of total expenses to average net assets(2)(3)
|
|
|
32.49
|
%
|
|
|
21.45
|
%
|
|
|
30.61
|
%
|
|
|
17.89
|
%
|
Ratio of net investment income to average net assets(2)
|
|
|
6.75
|
%
|
|
|
6.80
|
%
|
|
|
10.23
|
%
|
|
|
10.56
|
%
|
Ratio of contributed capital to total capital commitments
|
|
|
50.31
|
%
|
|
|
50.31
|
%
|
|
|
50.31
|
%
|
|
|
50.31
|
%
|
Total return based on change in net asset value(4)(5)
|
|
|
(25.01
|
)%
|
|
|
(3.84
|
)%
|
|
|
(14.52
|
)%
|
|
|
(2.60
|
)%
|
|
|
|
(1) |
|
The amounts reflected in the financial highlights above
represent the combined general partner and limited partner
amounts. See the Combined Statements of Changes in Members
Equity and Partners Capital for additional information. |
|
(2) |
|
Not annualized. |
|
(3) |
|
The Investment Manager voluntarily waived $526,050 of management
fees for the year ended December 31, 2007. |
|
(4) |
|
Total return based on change in net asset value was calculated
using the sum of ending net asset value plus distributions to
members and partners during the period less capital
contributions during the period, as divided by the beginning net
asset value. |
|
(5) |
|
This ratio combines the total return for both the managing
investors (the General Partner) and the
non-managing
investors (the Limited Partners). |
S-99
MAIN
STREET CAPITAL II, LP
Notes to
Combined Financial
Statements (Continued)
The Fund is taxed under the partnership provisions of the
Internal Revenue Code. Under these provisions of the Internal
Revenue Code, the General Partner and Limited Partners are
responsible for reporting their share of the Partnerships
income or loss on their income tax returns. Listed below is a
reconciliation of Net Increase (Decrease) in Members
Equity and Partners Capital Resulting From Operations to
taxable income for the nine months ended September 30, 2009
and 2008 and for the years ended December 31, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
2007
|
|
|
Net Increase (decrease) in net assets resulting from operations
|
|
$
|
(4,990,855
|
)
|
|
$
|
(945,753
|
)
|
|
$
|
(3,576,762
|
)
|
|
$
|
(576,791
|
)
|
Net Change in unrealized (appreciation) depreciation from
investments
|
|
|
6,616,884
|
|
|
|
3,347,699
|
|
|
|
3,882,491
|
|
|
|
4,005,154
|
|
Accrual basis to cash basis adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred debt origination fees included in taxable income
|
|
|
159,720
|
|
|
|
131,049
|
|
|
|
282,909
|
|
|
|
885,346
|
|
Accretion of unearned fee income for book income
|
|
|
(187,062
|
)
|
|
|
(104,141
|
)
|
|
|
(547,257
|
)
|
|
|
(231,150
|
)
|
Net Change in other assets
|
|
|
115,555
|
|
|
|
165,749
|
|
|
|
(96,496
|
)
|
|
|
(445,081
|
)
|
Net Change in interest payable
|
|
|
(789,293
|
)
|
|
|
(469,762
|
)
|
|
|
339,105
|
|
|
|
646,466
|
|
Portfolio company pass through taxable income (loss)
|
|
|
|
|
|
|
|
|
|
|
226,232
|
|
|
|
(590,720
|
)
|
Other
|
|
|
(5,269
|
)
|
|
|
(9,863
|
)
|
|
|
(34,461
|
)
|
|
|
(74,090
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable Income
|
|
$
|
919,680
|
|
|
$
|
2,114,978
|
|
|
$
|
475,761
|
|
|
$
|
3,619,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 12.
|
RELATED
PARTY TRANSACTIONS:
|
The Fund co-invests with Main Street Capital Corporation and its
subsidiaries (collectively, MSCC) in several
investments. MSCC and the Fund are commonly managed by the
Investment Manager. The co-investments among the Fund and MSCC
were made at the same time and on the same terms and conditions.
The co-investments were made in accordance with the Investment
Managers conflicts policy and in accordance with the
applicable SBIC conflict of interest regulations.
As discussed further in Note 5 Management
Agreement, the Fund paid certain management fees to the
Investment Manager during the nine months ended
September 30, 2009 and 2008, and the years ended
December 31, 2008 and 2007. The Investment Manager is
managed by principals who also control the General Partner of
the Fund.
The principals of the General Partner and their affiliates,
collectively have invested $3,015,000 in the limited partnership
interests of the Fund which represents a 5% limited partner
interests and which includes an unfunded portion totaling
$1,504,832.
|
|
NOTE 13.
|
SUBSEQUENT
EVENTS:
|
During October 2009, the Fund sold its portfolio investment in
Universal Scaffolding & Equipment, LLC (Universal),
which was on non-accrual status as of September 30, 2009,
for $1.8 million. The Fund had recorded unrealized
depreciation as of September 30, 2009 on its Universal
investment equal to the loss it realized on the sale in the
fourth quarter of 2009.
S-100
MAIN
STREET CAPITAL II, LP
Notes to
Combined Financial
Statements (Continued)
In November 2009, the Fund completed a new portfolio investment
in Drilling Info, Inc. (Drilling Info), a premier information
service provider for the domestic upstream oil and gas industry.
The Fund provided Drilling Info with debt financing in
connection with its acquisition of a data service company that
provides data products and web-enabled, decision-support
applications to various users within the energy industry. The
Funds $3.2 million investment in Drilling Info
consists of a second lien, secured debt investment with an
equity warrant participation representing an approximate 2%
equity interest in Drilling Info.
During December 2009 and January 2010, the Fund made
distributions to its limited partners totaling $1.1 million.
On January 7, 2010, MSCC consummated the transactions
related to its formal offer (Exchange Offer) commenced on
September 23, 2009 to exchange shares of its common stock
for at least a majority of the limited partner interests of the
Fund. The Exchange Offer was applicable to all Fund limited
partner interests except for any limited partner interests owned
by affiliates of MSCC, including any limited partner interests
owned by officers or directors of MSCC. At the closing of the
Exchange Offer, approximately 88% of the total dollar value of
Fund limited partner interests were validly exchanged for
1,239,695 shares of MSCC common stock. A 12% minority
ownership in the total dollar value of Fund limited partnership
interests remains outstanding, including approximately 5% owned
by affiliates of MSCC. Pursuant to the terms of the Exchange
Offer, 100% of the membership interests in the General Partner
were also transferred to MSCC for no consideration. In
connection with the Exchange Offer, MSC II Equity Interests, LLC
(MSEI II) was formed as a wholly owned subsidiary of the Fund.
The Fund transferred to MSEI II certain equity investments in
portfolio companies which are pass through entities
for tax purposes. MSEI II has elected for tax purposes to be
treated as a separate taxable entity and is taxed at normal
corporate tax rates based on its taxable income.
The Fund has performed an evaluation of subsequent events
through January 7, 2010, which is the date the financial
statements were issued.
S-101
On January 7, 2010, Main Street Capital Corporation
(Main Street or MSCC) consummated the
transactions related to the Exchange Offer and issued
1,239,695 shares of its common stock in exchange for
approximately 88% of the total dollar value of Main Street
Capital II, LP (MSC II) limited partner interests.
In connection with the Exchange Offer, Main Street also funded
the remaining limited partner capital commitments for the
purchased limited partner interests in order to conform with the
U.S. Small Business Administration (SBA)
regulatory requirements. Pursuant to the terms of the Exchange
Offer, 100% of the membership interests in the general partner
of MSC II were also transferred to Main Street for no
consideration. As part of the Exchange Offer transactions, Main
Street transferred certain equity investments in portfolio
companies which are pass through entities for tax
purposes into a wholly owned subsidiary that is treated as a
separate taxable entity. The unaudited pro forma condensed
combined financial information has been derived from, and should
be read in conjunction with, the historical consolidated
financial statements of Main Street and the historical combined
financial statements of MSC II and the general partner of MSC
II, and the related footnotes to those financial statements.
The following unaudited pro forma condensed combined financial
information and explanatory notes illustrate the effect of the
Exchange Offer and related transactions on Main Streets
financial position and results of operations based upon the
companies respective historical financial positions and
results of operations under the acquisition method of accounting
with Main Street treated as the acquirer. Under this method of
accounting, the assets and liabilities of MSC II will be
recorded by Main Street at their estimated fair values as of the
date of the Exchange Offer. The unaudited pro forma condensed
combined financial information of Main Street and MSC II
reflects the unaudited condensed combined balance sheet as of
September 30, 2009 and the unaudited condensed combined
income statements for the year ended December 31, 2008 and
the nine months ended September 30, 2009. The condensed
combined balance sheet as of September 30, 2009 assumes the
Exchange Offer and related transactions took place on that date.
The condensed combined statements of income for the year ended
December 31, 2008 and for the nine months ended
September 30, 2009 assume the Exchange Offer and related
transactions took place on January 1, 2008.
The unaudited pro forma condensed combined financial
information is presented for illustrative purposes only and does
not indicate the financial results of the combined companies had
the companies actually been combined at the beginning of each
period presented, nor the impact of possible business model
changes. The unaudited pro forma condensed combined financial
information also does not consider any potential impacts of
current market conditions on investment income, earnings or cash
flows, expense efficiencies, new investments or redeemed
investments, and share issuances or repurchases, among other
factors. In addition, as explained in more detail in the
accompanying notes to the unaudited pro forma condensed combined
financial information, the allocation of the pro forma purchase
price reflected in the unaudited pro forma condensed combined
financial information is subject to adjustment and may vary
significantly from the final purchase price allocation
determined subsequent to the Exchange Offer.
S-102
MAIN
STREET CAPITAL CORPORATION
Pro Forma
Condensed Combined Balance Sheet
Unaudited
September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MSCC and
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
Subsidiaries
|
|
|
MSC II
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
Assets
|
Investments core portfolio
|
|
$
|
123,458,723
|
|
|
$
|
68,117,738
|
|
|
$
|
|
|
|
$
|
191,576,461
|
|
Investment in affiliated Investment Manager
|
|
|
16,340,706
|
|
|
|
|
|
|
|
(13,959,139
|
)(1)
|
|
|
2,381,567
|
|
Marketable securities and idle funds investments
|
|
|
39,912,232
|
|
|
|
8,271,411
|
|
|
|
(12,000,000
|
)(8)
|
|
|
36,183,643
|
|
Cash and cash equivalents
|
|
|
8,216,699
|
|
|
|
5,420,353
|
|
|
|
(250,000
|
)(2)
|
|
|
36,287,052
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,100,000
|
)(9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,000,000
|
(8)
|
|
|
|
|
Other assets
|
|
|
3,701,912
|
|
|
|
2,772,210
|
|
|
|
(2,076,898
|
)(3)
|
|
|
4,397,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
191,630,272
|
|
|
$
|
84,581,712
|
|
|
$
|
(5,386,037
|
)
|
|
$
|
270,825,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Net Asset Value
|
SBIC debentures
|
|
$
|
55,000,000
|
|
|
$
|
70,000,000
|
|
|
$
|
(16,459,247
|
)(3)
|
|
$
|
108,540,753
|
|
Bank line of credit
|
|
|
|
|
|
|
|
|
|
|
12,000,000
|
(8)
|
|
|
12,000,000
|
|
Other liabilities
|
|
|
7,567,447
|
|
|
|
453,759
|
|
|
|
251,447
|
(4)
|
|
|
8,272,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
62,567,447
|
|
|
|
70,453,759
|
|
|
|
(4,207,800
|
)
|
|
|
128,813,406
|
|
Total net asset value (before noncontrolling interest)
|
|
|
129,062,825
|
|
|
|
14,127,953
|
|
|
|
(4,437,300
|
)(6)
|
|
|
138,753,478
|
|
Noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
3,259,063
|
(5)
|
|
|
3,259,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net asset value
|
|
|
129,062,825
|
|
|
|
14,127,953
|
|
|
|
(1,178,237
|
)
|
|
|
142,012,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and net asset value
|
|
$
|
191,630,272
|
|
|
$
|
84,581,712
|
|
|
$
|
(5,386,037
|
)
|
|
$
|
270,825,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Asset Value Per Share (before noncontrolling interest)
|
|
$
|
12.01
|
|
|
|
|
|
|
|
|
|
|
$
|
11.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-103
MAIN
STREET CAPITAL CORPORATION
Pro Forma
Condensed Combined Income Statement
Unaudited
Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MSCC and
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
Subsidiaries
|
|
|
MSC II
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
Interest, fee and dividend income
|
|
$
|
15,967,197
|
|
|
$
|
8,962,776
|
|
|
$
|
|
|
|
$
|
24,929,973
|
|
Interest from marketable securities, idle funds and other
|
|
|
1,328,229
|
|
|
|
139,801
|
|
|
|
240,000
|
(11)
|
|
|
1,708,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment income
|
|
|
17,295,426
|
|
|
|
9,102,577
|
|
|
|
240,000
|
|
|
|
26,638,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
(3,777,919
|
)
|
|
|
(3,319,480
|
)
|
|
|
(360,000
|
)(11)
|
|
|
(7,292,222
|
)
|
|
|
|
|
|
|
|
|
|
|
|
165,177
|
(3)
|
|
|
|
|
General and administrative
|
|
|
(1,684,084
|
)
|
|
|
(178,198
|
)
|
|
|
|
|
|
|
(1,862,282
|
)
|
Expenses reimbursed to affiliated Investment Manager
|
|
|
(1,006,835
|
)
|
|
|
(3,325,200
|
)
|
|
|
|
|
|
|
(4,332,035
|
)
|
Share-based compensation
|
|
|
(511,452
|
)
|
|
|
|
|
|
|
|
|
|
|
(511,452
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
(6,980,290
|
)
|
|
|
(6,822,878
|
)
|
|
|
(194,823
|
)
|
|
|
(13,997,991
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
10,315,136
|
|
|
|
2,279,699
|
|
|
|
45,177
|
|
|
|
12,640,012
|
|
Net realized gain (loss)
|
|
|
1,397,494
|
|
|
|
(1,973,970
|
)
|
|
|
|
|
|
|
(576,476
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized income
|
|
|
11,712,630
|
|
|
|
305,729
|
|
|
|
45,177
|
|
|
|
12,063,536
|
|
Net unrealized depreciation investment portfolio
|
|
|
(3,011,718
|
)
|
|
|
(3,882,491
|
)
|
|
|
|
|
|
|
(6,894,209
|
)
|
Net unrealized depreciation investment in affiliated
Investment Manager
|
|
|
(949,374
|
)
|
|
|
|
|
|
|
835,449
|
(12)
|
|
|
(113,925
|
)
|
Income tax (provision) benefit
|
|
|
3,182,401
|
|
|
|
|
|
|
|
408,432
|
(4)
|
|
|
3,590,833
|
|
Bargain purchase gain
|
|
|
|
|
|
|
|
|
|
|
3,715,496
|
(6)(d)
|
|
|
3,715,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in net assets resulting from operations
|
|
|
10,933,939
|
|
|
|
(3,576,762
|
)
|
|
|
5,004,554
|
|
|
|
12,361,731
|
|
Noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
360,378
|
(10)
|
|
|
360,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in net assets resulting from operations,
net of noncontrolling interest
|
|
$
|
10,933,939
|
|
|
$
|
(3,576,762
|
)
|
|
$
|
5,364,932
|
|
|
$
|
12,722,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income per share, net of noncontrolling interest
|
|
$
|
1.13
|
|
|
|
|
|
|
|
|
|
|
$
|
1.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized income per share, net of noncontrolling interest
|
|
$
|
1.29
|
|
|
|
|
|
|
|
|
|
|
$
|
1.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in net assets resulting from operations
per share, net of noncontrolling interest
|
|
$
|
1.20
|
|
|
|
|
|
|
|
|
|
|
$
|
1.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
9,095,904
|
|
|
|
|
|
|
|
1,239,695
|
(7)
|
|
|
10,335,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-104
MAIN
STREET CAPITAL CORPORATION
Pro Forma
Condensed Combined Income Statement
Unaudited
Nine Months Ended September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MSCC and
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
Subsidiaries
|
|
|
MSC II
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
Interest, fee and dividend income
|
|
$
|
10,380,048
|
|
|
$
|
6,487,873
|
|
|
$
|
|
|
|
$
|
16,867,921
|
|
Interest from marketable securities, idle funds and other
|
|
|
1,314,045
|
|
|
|
200,186
|
|
|
|
135,000
|
(11)
|
|
|
1,649,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment income
|
|
|
11,694,093
|
|
|
|
6,688,059
|
|
|
|
135,000
|
|
|
|
18,517,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
(2,830,325
|
)
|
|
|
(2,924,791
|
)
|
|
|
(270,000
|
)(11)
|
|
|
(5,856,907
|
)
|
|
|
|
|
|
|
|
|
|
|
|
168,209
|
(3)
|
|
|
|
|
General and administrative
|
|
|
(1,061,928
|
)
|
|
|
(118,219
|
)
|
|
|
|
|
|
|
(1,180,147
|
)
|
Expenses reimbursed to affiliated Investment Manager
|
|
|
(306,175
|
)
|
|
|
(2,493,900
|
)
|
|
|
|
|
|
|
(2,800,075
|
)
|
Share-based compensation
|
|
|
(767,218
|
)
|
|
|
|
|
|
|
|
|
|
|
(767,218
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
(4,965,646
|
)
|
|
|
(5,536,910
|
)
|
|
|
(101,791
|
)
|
|
|
(10,604,347
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
6,728,447
|
|
|
|
1,151,149
|
|
|
|
33,209
|
|
|
|
7,912,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gain
|
|
|
1,478,834
|
|
|
|
474,880
|
|
|
|
|
|
|
|
1,953,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized income
|
|
|
8,207,281
|
|
|
|
1,626,029
|
|
|
|
33,209
|
|
|
|
9,866,519
|
|
Net unrealized appreciation (depreciation)
investment portfolio
|
|
|
1,646,556
|
|
|
|
(6,616,884
|
)
|
|
|
|
|
|
|
(4,970,328
|
)
|
Net unrealized appreciation (depreciation)
investment in affiliated Investment Manager
|
|
|
(334,920
|
)
|
|
|
|
|
|
|
715,412
|
(12)
|
|
|
380,492
|
|
Income tax (provision) benefit
|
|
|
789,564
|
|
|
|
|
|
|
|
(659,879
|
)(4)
|
|
|
129,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in net assets resulting from operations
|
|
|
10,308,481
|
|
|
|
(4,990,855
|
)
|
|
|
88,742
|
|
|
|
5,406,368
|
|
Noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
657,903
|
(10)
|
|
|
657,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in net assets resulting from operations,
net of noncontrolling interest
|
|
$
|
10,308,481
|
|
|
$
|
(4,990,855
|
)
|
|
$
|
746,645
|
|
|
$
|
6,064,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income per share, net of noncontrolling interest
|
|
$
|
0.69
|
|
|
|
|
|
|
|
|
|
|
$
|
0.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized income per share, net of noncontrolling interest
|
|
$
|
0.84
|
|
|
|
|
|
|
|
|
|
|
$
|
0.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in net assets resulting from operations
per share, net of noncontrolling interest
|
|
$
|
1.05
|
|
|
|
|
|
|
|
|
|
|
$
|
0.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
9,788,226
|
|
|
|
|
|
|
|
1,239,695
|
(7)
|
|
|
11,027,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-105
MAIN
STREET CAPITAL CORPORATION
PRO FORMA
COMBINED SCHEDULE OF CORE PORTFOLIO INVESTMENTS
September 30, 2009
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
Portfolio Company/Type of Investment(a)(b)
|
|
Industry
|
|
Principal(f)
|
|
|
Cost(f)
|
|
|
Fair Value
|
|
|
Control Investments(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advantage Millwork Company, Inc.
|
|
Manufacturer/Distributor of Wood Doors
|
|
|
|
|
|
|
|
|
|
|
|
|
12% Secured Debt (Maturity February 5, 2012)
|
|
$
|
7,666,667
|
|
|
$
|
7,402,554
|
|
|
$
|
4,850,000
|
|
Warrants (Fully diluted 30.5%)
|
|
|
|
|
|
|
|
|
244,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,647,114
|
|
|
|
4,850,000
|
|
Café Brazil, LLC
|
|
Casual Restaurant Group
|
|
|
|
|
|
|
|
|
|
|
|
|
12% Secured Debt (Maturity April 20, 2011)
|
|
|
|
|
2,625,000
|
|
|
|
2,610,188
|
|
|
|
2,625,000
|
|
Member Units(g) (Fully diluted 42.3%)
|
|
|
|
|
|
|
|
|
41,837
|
|
|
|
1,390,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,652,025
|
|
|
|
4,015,000
|
|
California Healthcare Medical Billing, Inc.
|
|
Healthcare Billing and Records Management
|
|
|
|
|
|
|
|
|
|
|
|
|
12% Secured Debt (Maturity October 17, 2013)
|
|
|
2,303,000
|
|
|
|
1,913,621
|
|
|
|
2,080,908
|
|
Common Stock (Fully diluted 9.8%)
|
|
|
|
|
|
|
|
|
637,000
|
|
|
|
1,225,000
|
|
Warrants (Fully diluted 19.6%)
|
|
|
|
|
|
|
|
|
392,000
|
|
|
|
1,845,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,942,621
|
|
|
|
5,151,575
|
|
CBT Nuggets, LLC
|
|
Produces and Sells IT Certification Training Videos
|
|
|
|
|
|
|
|
|
|
|
|
|
14% Secured Debt (Maturity December 31, 2013)
|
|
|
2,800,000
|
|
|
|
2,735,525
|
|
|
|
2,800,000
|
|
10% Secured Debt (Maturity March 31, 2012)
|
|
|
1,525,000
|
|
|
|
1,525,000
|
|
|
|
1,525,000
|
|
10% Secured Debt (Maturity March 31, 2010)
|
|
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
100,000
|
|
Member Units(g) (Fully diluted 40.8%)
|
|
|
|
|
|
|
|
|
499,200
|
|
|
|
2,316,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,859,725
|
|
|
|
6,741,667
|
|
Ceres Management, LLC (Lambs)
|
|
Aftermarket Automotive Services Chain
|
|
|
|
|
|
|
|
|
|
|
|
|
14% Secured Debt (Maturity May 31, 2013)
|
|
|
4,000,000
|
|
|
|
3,950,539
|
|
|
|
3,950,539
|
|
Class B Member Units (Non-voting)
|
|
|
|
|
|
|
|
|
262,503
|
|
|
|
262,503
|
|
Member Units (Fully diluted 70.0%)
|
|
|
|
|
|
|
|
|
2,000,000
|
|
|
|
1,850,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,213,042
|
|
|
|
6,063,042
|
|
Condit Exhibits, LLC
|
|
Tradeshow Exhibits/Custom Displays
|
|
|
|
|
|
|
|
|
|
|
|
|
13% current / 5% PIK Secured Debt (Maturity
July 1, 2013)
|
|
|
4,123,076
|
|
|
|
4,067,336
|
|
|
|
4,067,336
|
|
Warrants (Fully diluted 46.9%)
|
|
|
|
|
|
|
|
|
500,000
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,567,336
|
|
|
|
4,117,336
|
|
Gulf Manufacturing, LLC
|
|
Industrial Metal
Fabrication
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime plus 1% Secured Debt (Maturity August 31,
2012)
|
|
|
3,000,000
|
|
|
|
2,981,330
|
|
|
|
3,000,000
|
|
13% Secured Debt (Maturity August 31, 2012)
|
|
|
|
|
3,000,000
|
|
|
|
2,798,768
|
|
|
|
2,950,000
|
|
Member Units(g) (Fully diluted 46.0%)
|
|
|
|
|
|
|
|
|
1,180,000
|
|
|
|
5,900,000
|
|
Warrants (Fully diluted 21.0%)
|
|
|
|
|
|
|
|
|
400,000
|
|
|
|
2,700,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,360,098
|
|
|
|
14,550,000
|
|
Hawthorne Customs & Dispatch Services, LLC
|
|
Transportation/
Logistics
|
|
|
|
|
|
|
|
|
|
|
|
|
13% Secured Debt (Maturity January 31, 2011)
|
|
|
1,100,000
|
|
|
|
1,076,519
|
|
|
|
1,076,519
|
|
Member Units(g) (Fully diluted 59.2%)
|
|
|
|
|
|
|
|
|
550,000
|
|
|
|
1,120,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,626,519
|
|
|
|
2,196,519
|
|
Hydratec Holdings, LLC
|
|
Agricultural Services
|
|
|
|
|
|
|
|
|
|
|
|
|
12.5% Secured Debt (Maturity October 31, 2012)
|
|
|
|
|
2,995,244
|
|
|
|
2,953,861
|
|
|
|
2,953,861
|
|
Prime plus 1% Secured Debt (Maturity
October 31, 2012)
|
|
|
|
|
350,000
|
|
|
|
337,667
|
|
|
|
337,667
|
|
Member Units (Fully diluted 85.1%)
|
|
|
|
|
|
|
|
|
4,100,000
|
|
|
|
6,620,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,391,528
|
|
|
|
9,911,528
|
|
Indianapolis Aviation Partners, LLC
|
|
FBO / Aviation Support Services
|
|
|
|
|
|
|
|
|
|
|
|
|
12% Secured Debt (Maturity September 15, 2014)
|
|
|
4,700,000
|
|
|
|
4,236,499
|
|
|
|
4,236,499
|
|
Warrants (Fully diluted 30.2%)
|
|
|
|
|
|
|
|
|
1,129,285
|
|
|
|
1,129,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,365,784
|
|
|
|
5,365,784
|
|
S-106
MAIN
STREET CAPITAL CORPORATION
PRO FORMA COMBINED SCHEDULE OF CORE PORTFOLIO
INVESTMENTS
September 30, 2009
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
Portfolio Company/Type of Investment(a)(b)
|
|
Industry
|
|
Principal(f)
|
|
|
Cost(f)
|
|
|
Fair Value
|
|
|
Jensen Jewelers of Idaho, LLC
|
|
Retail Jewelry
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime Plus 2% Secured Debt (Maturity
November 14, 2011)
|
|
|
|
|
2,610,000
|
|
|
|
2,591,211
|
|
|
|
2,612,167
|
|
13% current / 6% PIK Secured Debt (Maturity
November 14, 2011)
|
|
|
|
|
2,628,087
|
|
|
|
2,585,488
|
|
|
|
2,630,686
|
|
Member Units(g) (Fully diluted 60.8%)
|
|
|
|
|
|
|
|
|
940,000
|
|
|
|
725,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,116,699
|
|
|
|
5,967,853
|
|
Mid-Columbia Lumber Products, LLC
|
|
Specialized Lumber Products
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime Plus 1% Secured Debt (Maturity June 30,
2010)
|
|
|
|
|
375,000
|
|
|
|
372,500
|
|
|
|
372,500
|
|
12% Secured Debt (Maturity December 18, 2011)
|
|
|
|
|
3,900,000
|
|
|
|
3,690,378
|
|
|
|
3,690,378
|
|
Member Units (Fully diluted 26.7%)
|
|
|
|
|
|
|
|
|
500,000
|
|
|
|
300,000
|
|
Warrants (Fully diluted 25.5%)
|
|
|
|
|
|
|
|
|
250,000
|
|
|
|
290,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,812,878
|
|
|
|
4,652,878
|
|
NAPCO Precast, LLC
|
|
Precast Concrete Manufacturing
|
|
|
|
|
|
|
|
|
|
|
|
|
18% Secured Debt (Maturity February 1, 2013)
|
|
|
5,923,077
|
|
|
|
5,832,742
|
|
|
|
5,923,076
|
|
Prime Plus 2% Secured Debt (Maturity
February 1, 2013)(h)
|
|
|
|
|
3,384,615
|
|
|
|
3,360,369
|
|
|
|
3,384,616
|
|
Member Units(g) (Fully diluted 35.3%)
|
|
|
|
|
|
|
|
|
2,020,000
|
|
|
|
5,120,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,213,111
|
|
|
|
14,427,692
|
|
OMi Holdings, Inc.
|
|
Manufacturer of Overhead Cranes
|
|
|
|
|
|
|
|
|
|
|
|
|
12% Secured Debt (Maturity April 1, 2013)
|
|
|
10,570,000
|
|
|
|
10,489,530
|
|
|
|
10,489,530
|
|
Common Stock (Fully diluted 48.0%)
|
|
|
|
|
|
|
|
|
1,500,000
|
|
|
|
650,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,989,530
|
|
|
|
11,139,530
|
|
Quest Design & Production, LLC
|
|
Design and Fabrication of Custom Display Systems
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime plus 2% Secured Debt (Maturity June 30,
2014)
|
|
|
60,000
|
|
|
|
60,000
|
|
|
|
60,000
|
|
10% Secured Debt (Maturity June 30, 2014)
|
|
|
|
|
600,000
|
|
|
|
465,060
|
|
|
|
600,000
|
|
0% Secured Debt (Maturity June 30, 2014)
|
|
|
|
|
2,060,000
|
|
|
|
2,060,000
|
|
|
|
1,460,000
|
|
Warrants (Fully diluted 40.0%)
|
|
|
|
|
|
|
|
|
1,595,858
|
|
|
|
|
|
Warrants (Fully diluted 20.0%)
|
|
|
|
|
|
|
|
|
40,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,220,918
|
|
|
|
2,120,000
|
|
The MPI Group, LLC
|
|
Manufacturer of Custom Hollow Metal Doors, Frames and Accessories
|
|
|
|
|
|
|
|
|
|
|
|
|
9% Secured Debt (Maturity October 2, 2013)
|
|
|
200,000
|
|
|
|
198,459
|
|
|
|
198,459
|
|
12% Secured Debt (Maturity October 2, 2013)
|
|
|
5,000,000
|
|
|
|
4,775,870
|
|
|
|
4,775,870
|
|
Warrants (Fully diluted 29.7%)
|
|
|
|
|
|
|
|
|
695,943
|
|
|
|
394,000
|
|
Warrants (Fully diluted 17.4%)
|
|
|
|
|
|
|
|
|
200,000
|
|
|
|
229,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,870,272
|
|
|
|
5,597,329
|
|
Thermal & Mechanical Equipment, LLC
|
|
Heat Exchange / Filtration Products and Services
|
|
|
|
|
|
|
|
|
|
|
|
|
13% current / 5% PIK Secured Debt (Maturity
September 25, 2014)
|
|
|
5,504,583
|
|
|
|
5,416,242
|
|
|
|
5,416,242
|
|
Prime plus 2% Secured Debt (Maturity
September 25, 2014)(h)
|
|
|
|
|
1,750,000
|
|
|
|
1,736,289
|
|
|
|
1,736,289
|
|
Warrants (Fully diluted 50.0%)
|
|
|
|
|
|
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,152,531
|
|
|
|
8,152,531
|
|
Universal Scaffolding & Equipment, LLC
|
|
Manufacturer of Scaffolding and Shoring Equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime plus 1% Secured Debt (Maturity August 17,
2012)(h)
|
|
|
2,590,270
|
|
|
|
2,572,911
|
|
|
|
2,572,911
|
|
13% current / 5% PIK Secured Debt (Maturity
August 17, 2012)
|
|
|
|
|
10,391,311
|
|
|
|
10,255,783
|
|
|
|
65,422
|
|
Member Units (Fully diluted 57.1%)
|
|
|
|
|
|
|
|
|
3,052,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,881,196
|
|
|
|
2,638,333
|
|
S-107
MAIN
STREET CAPITAL CORPORATION
PRO FORMA
COMBINED SCHEDULE OF CORE PORTFOLIO INVESTMENTS
September 30, 2009
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
Portfolio Company/Type of Investment(a)(b)
|
|
Industry
|
|
Principal(f)
|
|
|
Cost(f)
|
|
|
Fair Value
|
|
|
Uvalco Supply, LLC
|
|
Farm and Ranch Supply
|
|
|
|
|
|
|
|
|
|
|
|
|
Member Units(g) (Fully diluted 39.6%)
|
|
|
|
|
|
|
|
|
905,743
|
|
|
|
1,390,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vision Interests, Inc.
|
|
Manufacturer/Installer of Commercial Signage
|
|
|
|
|
|
|
|
|
|
|
|
|
13% Secured Debt (Maturity June 5, 2012)
|
|
|
9,400,000
|
|
|
|
9,027,078
|
|
|
|
8,050,000
|
|
Common Stock (Fully diluted 22.3%)
|
|
|
|
|
|
|
930,000
|
|
|
|
|
|
Warrants (Fully diluted 28.0%)
|
|
|
|
|
|
|
|
|
400,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,357,078
|
|
|
|
8,050,000
|
|
Zieglers NYPD, LLC
|
|
Casual Restaurant Group
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime plus 2% Secured Debt (Maturity October 1,
2013)(h)
|
|
|
|
|
1,000,000
|
|
|
|
991,650
|
|
|
|
991,650
|
|
13% current / 5% PIK Secured Debt (Maturity
October 1, 2013)
|
|
|
|
|
4,680,906
|
|
|
|
4,615,670
|
|
|
|
4,615,670
|
|
Warrants (Fully diluted 47.6%)
|
|
|
|
|
|
|
|
|
600,000
|
|
|
|
600,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,207,320
|
|
|
|
6,207,320
|
|
Other
|
|
|
|
|
|
|
|
|
1,964,785
|
|
|
|
1,964,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Control Investments
|
|
|
|
|
|
|
|
|
138,317,853
|
|
|
|
135,270,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-108
MAIN
STREET CAPITAL CORPORATION
PRO FORMA
COMBINED SCHEDULE OF CORE PORTFOLIO INVESTMENTS
September 30, 2009
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
Portfolio Company/Type of Investment(a)(b)
|
|
Industry
|
|
Principal(f)
|
|
|
Cost(f)
|
|
|
Fair Value
|
|
|
Affiliate Investments(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American Sensor Technologies, Inc.
|
|
Manufacturer of Commercial/Industrial Sensors
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime plus 0.5% Secured Debt (Maturity May 31,
2010)(h)
|
|
|
3,800,000
|
|
|
|
3,800,000
|
|
|
|
3,800,000
|
|
Warrants (Fully diluted 19.6%)
|
|
|
|
|
|
|
49,990
|
|
|
|
820,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,849,990
|
|
|
|
4,620,000
|
|
Audio Messaging Solutions, LLC
|
|
Audio Messaging Services
|
|
|
|
|
|
|
|
|
|
|
|
|
12% Secured Debt (Maturity May 8, 2014)
|
|
|
5,684,000
|
|
|
|
5,264,024
|
|
|
|
5,264,024
|
|
Warrants (Fully diluted 8.4%)
|
|
|
|
|
|
|
|
|
358,400
|
|
|
|
633,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,622,424
|
|
|
|
5,897,357
|
|
Carlton Global Resources, LLC
|
|
Processor of Industrial Minerals
|
|
|
|
|
|
|
|
|
|
|
|
|
13% PIK Secured Debt (Maturity November 15,
2011)
|
|
|
11,979,859
|
|
|
|
11,598,100
|
|
|
|
|
|
Member Units (Fully diluted 21.3%)
|
|
|
|
|
|
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,598,100
|
|
|
|
|
|
Compact Power Equipment Centers, LLC
|
|
Light to Medium Duty Equipment Rental
|
|
|
|
|
|
|
|
|
|
|
|
|
12% Secured Debt (Maturity September 23, 2014)
|
|
|
529,412
|
|
|
|
534,026
|
|
|
|
534,026
|
|
Member Units (Fully diluted 11.5%)
|
|
|
|
|
|
|
|
|
1,147
|
|
|
|
1,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
535,173
|
|
|
|
535,173
|
|
East Teak Fine Hardwoods, Inc.
|
|
Hardwood Products
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock (Fully diluted 5.0%)
|
|
|
|
|
|
|
|
|
200,000
|
|
|
|
569,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Houston Plating & Coatings, LLC
|
|
Plating & Industrial Coating Services
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime plus 2% Secured Debt (Maturity July 19,
2011)
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
100,000
|
|
Prime plus 2% Secured Debt (Maturity July 18,
2013)
|
|
|
|
|
200,000
|
|
|
|
200,000
|
|
|
|
200,000
|
|
Member Units(g) (Fully diluted 11.1%)
|
|
|
|
|
|
|
|
|
335,000
|
|
|
|
3,165,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
635,000
|
|
|
|
3,465,000
|
|
KBK Industries, LLC
|
|
Specialty Manufacturer of Oilfield and Industrial Products
|
|
|
|
|
|
|
|
|
|
|
|
|
14% Secured Debt (Maturity January 23, 2011)
|
|
|
5,250,000
|
|
|
|
5,110,545
|
|
|
|
5,110,545
|
|
8% Secured Debt (Maturity March 1, 2010)
|
|
|
250,000
|
|
|
|
250,000
|
|
|
|
250,000
|
|
8% Secured Debt (Maturity March 31, 2010)
|
|
|
|
|
600,000
|
|
|
|
600,000
|
|
|
|
600,000
|
|
Member Units(g) (Fully diluted 19.3%)
|
|
|
|
|
|
|
|
|
250,000
|
|
|
|
360,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,210,545
|
|
|
|
6,320,545
|
|
Laurus Healthcare, LP
|
|
Healthcare Facilities / Services
|
|
|
|
|
|
|
|
|
|
|
|
|
13% Secured Debt (Maturity May 7, 2012)
|
|
|
|
|
2,275,000
|
|
|
|
2,275,000
|
|
|
|
2,275,000
|
|
Warrants (Fully diluted 17.5%)
|
|
|
|
|
|
|
|
|
105,000
|
|
|
|
4,400,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,380,000
|
|
|
|
6,675,000
|
|
Lighting Unlimited, LLC
|
|
Commercial and Residential Lighting Products and Design Services
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime Plus 1% Secured Debt (Maturity August 22,
2012)(h)
|
|
|
1,233,333
|
|
|
|
1,225,742
|
|
|
|
1,225,742
|
|
14% Secured Debt (Maturity August 22, 2012)
|
|
|
1,600,000
|
|
|
|
1,545,081
|
|
|
|
1,545,081
|
|
Warrants (Fully diluted 15.0%)
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,820,823
|
|
|
|
2,820,823
|
|
S-109
MAIN
STREET CAPITAL CORPORATION
PRO FORMA
COMBINED SCHEDULE OF CORE PORTFOLIO INVESTMENTS
September 30, 2009
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
Portfolio Company/Type of Investment(a)(b)
|
|
Industry
|
|
Principal(f)
|
|
|
Cost(f)
|
|
|
Fair Value
|
|
|
National Trench Safety, LLC
|
|
Trench & Traffic Safety Equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
10% PIK Debt (Maturity April 16, 2014)
|
|
|
435,966
|
|
|
|
435,968
|
|
|
|
435,968
|
|
Member Units (Fully diluted 11.7%)
|
|
|
|
|
|
|
|
|
1,792,308
|
|
|
|
1,910,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,228,276
|
|
|
|
2,345,968
|
|
Olympus Building Services, Inc.
|
|
Custodial/Facilities Services
|
|
|
|
|
|
|
|
|
|
|
|
|
12% Secured Debt (Maturity March 27, 2014)
|
|
|
3,150,000
|
|
|
|
2,863,776
|
|
|
|
3,050,000
|
|
Warrants (Fully diluted 22.5%)
|
|
|
|
|
|
|
|
|
250,000
|
|
|
|
666,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,113,776
|
|
|
|
3,716,667
|
|
Pulse Systems, LLC
|
|
Manufacturer of Components for Medical Devices
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants (Fully diluted 7.4%)
|
|
|
|
|
|
|
132,856
|
|
|
|
450,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Schneider Sales Management, LLC
|
|
Sales Consulting and Training
|
|
|
|
|
|
|
|
|
|
|
|
|
13% Secured Debt (Maturity October 15, 2013)
|
|
|
|
|
3,300,000
|
|
|
|
3,196,337
|
|
|
|
3,196,337
|
|
Warrants (Fully diluted 20.0%)
|
|
|
|
|
|
|
|
|
75,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,271,337
|
|
|
|
3,196,337
|
|
Walden Smokey Point, Inc.
|
|
Specialty Transportation/Logistics
|
|
|
|
|
|
|
|
|
|
|
|
|
14% current / 4% PIK Secured Debt (Maturity
December 30, 2013)
|
|
|
8,243,555
|
|
|
|
8,101,727
|
|
|
|
8,101,727
|
|
Common Stock (Fully diluted 12.6%)
|
|
|
|
|
|
|
|
|
1,000,000
|
|
|
|
1,500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,101,727
|
|
|
|
9,601,727
|
|
WorldCall, Inc.
|
|
Telecommunication/Information Services
|
|
|
|
|
|
|
|
|
|
|
|
|
13% Secured Debt (Maturity April 22, 2011)
|
|
|
646,225
|
|
|
|
644,638
|
|
|
|
644,638
|
|
Common Stock (Fully diluted 9.9%)
|
|
|
|
|
|
|
|
|
296,631
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
941,269
|
|
|
|
744,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Affiliate Investments
|
|
|
|
|
|
|
|
|
53,641,296
|
|
|
|
50,958,466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-110
MAIN
STREET CAPITAL CORPORATION
PRO FORMA
COMBINED SCHEDULE OF CORE PORTFOLIO INVESTMENTS
September 30, 2009
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
Portfolio Company/Type of Investment(a)(b)
|
|
Industry
|
|
Principal(f)
|
|
|
Cost(f)
|
|
|
Fair Value
|
|
|
Non-Control/Non-Affiliate Investments(e):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hayden Acquisition, LLC
|
|
Manufacturer of Utility Structures
|
|
|
|
|
|
|
|
|
|
|
|
|
8% Secured Debt (Maturity August 9, 2010)
|
|
|
1,800,000
|
|
|
|
1,781,303
|
|
|
|
360,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Support Systems Homes, Inc.
|
|
Manages Substance Abuse Treatment Centers
|
|
|
|
|
|
|
|
|
|
|
|
|
15% Secured Debt (Maturity August 21, 2018)
|
|
|
576,600
|
|
|
|
576,600
|
|
|
|
576,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technical Innovations, LLC
|
|
Manufacturer of Specialty Cutting Tools and Punches
|
|
|
|
|
|
|
|
|
|
|
|
|
7% Secured Debt (Maturity November 30, 2009)
|
|
|
1,060,000
|
|
|
|
1,059,411
|
|
|
|
1,059,411
|
|
13.5% Secured Debt (Maturity January 16, 2015)
|
|
|
|
|
3,350,000
|
|
|
|
3,307,580
|
|
|
|
3,351,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,366,991
|
|
|
|
4,410,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Non-Control/Non-Affiliate Investments
|
|
|
|
|
|
|
|
|
6,724,894
|
|
|
|
5,347,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Core Portfolio Investments, September 30, 2009
|
|
|
|
|
|
|
|
$
|
198,684,043
|
|
|
$
|
191,576,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Debt investments are generally income producing. Equity and
warrants are non-income producing, unless otherwise noted. |
|
|
|
(b) |
|
See Note D for summary geographic location of portfolio
companies. |
|
|
|
(c) |
|
Controlled investments are defined by the Investment Company
Act of 1940, as amended (1940 Act) as investments in
which more than 25% of the voting securities are owned or where
the ability to nominate greater than 50% of the board
representation is maintained. |
|
|
|
(d) |
|
Affiliate investments are defined by the 1940 Act as
investments in which between 5% and 25% of the voting securities
are owned. |
|
|
|
(e) |
|
Non-Control/Non-Affiliate investments are defined by the 1940
Act as investments that are neither Control Investments nor
Affiliate Investments. |
|
|
|
(f) |
|
Principal is net of prepayments. Cost is net of prepayments
and accumulated unearned income. Cost of assets acquired in the
Exchange Offer is reflected herein at historical cost and does
not reflect any adjustments that may be required in accordance
with Accounting Standards Codification 805, Business
Combinations. |
|
|
|
(g) |
|
Income producing through payment of dividends or
distributions. |
|
|
|
(h) |
|
Subject to contractual minimum interest rates. |
S-111
MAIN
STREET CAPITAL CORPORATION
Notes to
Pro Forma Condensed Combined Financial Statements
(Unaudited)
|
|
NOTE A:
|
BASIS OF
PRO FORMA PRESENTATION
|
The unaudited pro forma condensed combined financial information
of Main Street and MSC II reflects the unaudited pro forma
condensed combined balance sheet as of September 30, 2009
and the unaudited pro forma condensed combined income statements
for the year ended December 31, 2008 and the nine months
ended September 30, 2009. Main Street issued
1,239,695 shares of its common stock in exchange for
approximately 88% of the total dollar value of MSC II limited
partner interests, representing a purchase price of
approximately $19.9 million. The purchase price was
calculated based upon a price of Main Street common stock of
$16.08 per share at closing of the Exchange Offer. Pursuant to
the terms of the Exchange Offer, 100% of the membership
interests in the general partner of MSC II were also transferred
to Main Street for no consideration.
The Exchange Offer will be accounted for as an acquisition of
MSC II by Main Street in accordance with the acquisition method
of accounting as detailed in Financial Accounting Standards
Board (FASB) Accounting Standards Codification
(Codification or ASC) 805, Business
Combinations (ASC 805). The fair value of the
consideration paid is allocated to the assets acquired and
liabilities assumed based on their fair values as of the date of
acquisition. As described in more detail in ASC 805, goodwill,
if any, is recognized as of the acquisition date, for the excess
of the consideration transferred over the fair value of
identifiable net assets acquired. If the total acquisition date
fair value of the identifiable net assets acquired exceeds the
fair value of the consideration transferred, the excess is
recognized as a bargain purchase gain. In connection with the
Exchange Offer, the estimated fair value of the MSC II net
assets acquired is anticipated to exceed the stock consideration
issued, resulting in a bargain purchase gain that will be
recorded by Main Street in the period in which the Exchange
Offer is completed.
Under the 1940 Act rules, the regulations pursuant to
Article 6 of
Regulation S-X
and the American Institute of Certified Public Accountants
Audit and Accounting Guide for Investment Companies, Main Street
is precluded from consolidating any entity other than another
investment company or an operating company which provides
substantially all of its services and benefits to Main Street.
Main Streets financial statements include the accounts of
Main Street Mezzanine Fund, LP (the Fund), its
general partner, Main Street Mezzanine Management, LLC (the
General Partner), and Main Street Equity Interests,
Inc. (MSEI). Main Streets wholly owned
subsidiary, Main Street Capital Partners, LLC (the
Investment Manager), is accounted for as a portfolio
investment, since the Investment Manager is not an investment
company and since it conducts a significant portion of its
investment management activities for entities other than Main
Street. All intercompany balances and transactions have been
eliminated in consolidation.
Main Street will determine the value of the assets acquired
under the guidance of ASC 820, Fair Value Measurements and
Disclosures (ASC 820). Under ASC 820,
investments are valued utilizing a market approach, an income
approach, or both approaches, as appropriate. Under the market
approach, Main Street will typically use the enterprise value
methodology to determine the fair value of investments. The
enterprise value is the fair value at which an enterprise could
be sold in a transaction between two willing parties, other than
through a forced or liquidation sale. Typically, private
companies are bought and sold based on multiples of earnings
before interest, taxes, depreciation and amortization, or
EBITDA, cash flows, net income, revenues, or in limited cases,
book value. There is no single methodology for estimating
enterprise value. For any one portfolio company, enterprise
value is generally described as a range of values from which a
single estimate of enterprise value is derived. In estimating
the enterprise value of a portfolio company, Main Street
analyzes various factors, including the portfolio companys
historical and projected financial results. Main Street
allocates the enterprise value to investments in order of the
legal priority of the investments. Main Street will also use the
income approach to determine the fair value of these securities,
based on projections of the discounted future free cash flows
that the portfolio company or the debt security will likely
generate. The valuation approaches for these investments
estimate the value of the investment if it were to sell, or
exit, the
S-112
MAIN
STREET CAPITAL CORPORATION
Notes to
Pro Forma Condensed Combined Financial Statements
(Continued)
(Unaudited)
investment, assuming the highest and best use of the investment
by market participants. In addition, these valuation approaches
consider the value associated with Main Streets ability to
control the capital structure of the portfolio company, as well
as the timing of a potential exit. The fair value determination
of each portfolio investment will require one or more of the
following unobservable inputs:
|
|
|
|
|
Financial information obtained from each portfolio company,
including unaudited statements of operations and balance sheets
for the most recent period available as compared to budgeted
numbers;
|
|
|
|
Current and projected financial condition of the portfolio
company;
|
|
|
|
Current and projected ability of the portfolio company to
service its debt obligations;
|
|
|
|
Type and amount of collateral, if any, underlying the investment;
|
|
|
|
Current financial ratios (e.g., fixed charge coverage ratio,
interest coverage ratio, and net debt/EBITDA ratio) applicable
to the investment;
|
|
|
|
Current liquidity of the investment and related financial ratios
(e.g., current ratio and quick ratio);
|
|
|
|
Pending debt or capital restructuring of the portfolio company;
|
|
|
|
Projected operating results of the portfolio company;
|
|
|
|
Current information regarding any offers to purchase the
investment;
|
|
|
|
Current ability of the portfolio company to raise any additional
financing as needed;
|
|
|
|
Changes in the economic environment which may have a material
impact on the operating results of the portfolio company;
|
|
|
|
Internal occurrences that may have an impact (both positive and
negative) on the operating performance of the portfolio company;
|
|
|
|
Qualitative assessment of key management;
|
|
|
|
Contractual rights, obligations or restrictions associated with
the investment; and
|
|
|
|
Other factors deemed relevant.
|
ASC 820 classifies the inputs used to measure fair value into a
three-level fair value hierarchy. The fair value hierarchy gives
the highest priority to quoted prices in active markets for
identical investments (Level 1) and the lowest
priority to unobservable inputs (Level 3).
Level 1 Investments whose values are based on
unadjusted quoted prices for identical assets in an active
market that Main Street has the ability to access (examples
include investments in active exchange-traded equity securities
and investments in most U.S. government and agency
securities).
Level 2 Investments whose values are based on
quoted prices in markets that are not active or model inputs
that are observable either directly or indirectly for
substantially the full term of the investment. Level 2
inputs include the following:
|
|
|
|
|
Quoted prices for similar assets in active markets (for example,
investments in restricted stock);
|
|
|
|
Quoted prices for identical or similar assets in non-active
markets (for example, investments in thinly traded public
companies);
|
|
|
|
Pricing models whose inputs are observable for substantially the
full term of the investment (for example, market interest rate
indices); and
|
S-113
MAIN
STREET CAPITAL CORPORATION
Notes to
Pro Forma Condensed Combined Financial Statements
(Continued)
(Unaudited)
|
|
|
|
|
Pricing models whose inputs are derived principally from, or
corroborated by, observable market data through correlation or
other means for substantially the full term of the investment.
|
Level 3 Investments whose values are based on
prices or valuation techniques that require inputs that are both
unobservable and significant to the overall fair value
measurement. These inputs reflect managements own
assumptions about the assumptions a market participant would use
in pricing the investment (for example, investments in illiquid
securities issued by private companies).
As required by ASC 820, when the inputs used to measure fair
value fall within different levels of the hierarchy, the level
within which the fair value measurement is categorized is based
on the lowest level input that is significant to the fair value
measurement in its entirety. For example, a Level 3 fair
value measurement may include inputs that are observable
(Levels 1 and 2) and unobservable (Level 3).
Changes in the observability of valuation inputs may result in a
reclassification for certain investments. All of the core
portfolio investments held by Main Street and MSC II are
level 3 assets.
Main Street will determine the value of the SBIC debentures
assumed upon closing of the Exchange Offer by adopting the fair
value option provisions of ASC 825, Financial
Instruments, relating to accounting for debt obligations at
their fair value. Main Street will use the income approach to
determine the fair value of the SBIC debentures based on the
discounted future interest and principal payments that will be
made on the SBIC debt facility.
The unaudited pro forma condensed combined financial information
includes preliminary estimated adjustments to record the assets
and liabilities of MSC II at their respective estimated fair
values and represents Main Streets estimates based on
available information. The pro forma adjustments included herein
may be revised as additional information becomes available and
as additional analyses are performed. The final allocation of
the purchase price will be determined after the Exchange Offer
is completed and after completion of a final analysis to
determine the estimated fair values of MSC IIs assets and
liabilities. Accordingly, the final purchase accounting
adjustments may be materially different from the pro forma
adjustments presented in this document. Increases or decreases
in the estimated fair values of the net assets and other items
related to MSC II as compared to the information shown in this
document may change the amount of the purchase price recognized
as a bargain purchase gain in accordance with ASC 805.
The unaudited pro forma condensed combined financial information
presented in this document is for illustrative purposes only and
does not necessarily indicate the results of operations or the
combined financial position that would have resulted had the
Exchange Offer been completed at the beginning of the applicable
period presented, nor the impact of possible business model
changes as a result of current market conditions which may
impact investment income, earnings or cash flows, expense
efficiencies, new investments or redeemed investments, share
issuances or repurchases and other factors. Additionally, the
unaudited pro forma condensed combined financial information is
not indicative of the results of operations in future periods or
the future financial position of the combined company.
|
|
NOTE B:
|
PRELIMINARY
PURCHASE ACCOUNTING ALLOCATIONS
|
The unaudited pro forma condensed combined financial information
for the Exchange Offer includes the unaudited pro forma
condensed combined balance sheet as of September 30, 2009
assuming the Exchange Offer and related transactions were
completed on September 30, 2009. The unaudited pro forma
condensed combined income statements for the year ended
December 31, 2008 and for the nine months ended
September 30, 2009, were prepared assuming the Exchange
Offer and related transactions were completed on January 1,
2008.
The unaudited pro forma condensed combined financial information
reflects the issuance of approximately 1.2 million shares
of Main Street common stock in connection with the Exchange
Offer.
S-114
MAIN
STREET CAPITAL CORPORATION
Notes to
Pro Forma Condensed Combined Financial Statements
(Continued)
(Unaudited)
The Exchange Offer will be accounted for using the acquisition
method of accounting under ASC 805. Accordingly, Main Street
will aggregate the value of the stock consideration issued to
acquire the majority of the limited partner interests in MSC II
with the fair value of the noncontrolling limited partner
interests in MSC II. Main Street will then compare the total
value of the stock consideration issued and noncontrolling
interest value against the fair value of MSC IIs
identifiable assets and liabilities as summarized in the
following table:
|
|
|
|
|
Value of the stock consideration issued for limited partner
interests acquired
|
|
$
|
19,934,296
|
|
Fair value of noncontrolling limited partner interests
|
|
|
3,259,063
|
|
|
|
|
|
|
Total stock consideration and noncontrolling interest value
|
|
|
23,193,359
|
|
Fair value of MSC II assets and liabilities:
|
|
|
|
|
Cash and marketable securities (net of distribution to limited
partners)
|
|
|
12,591,764
|
|
Debt investments acquired at fair value
|
|
|
54,932,303
|
|
Equity investments acquired at fair value
|
|
|
13,185,435
|
|
Other assets
|
|
|
695,312
|
|
SBIC debt at fair value
|
|
|
(53,540,753
|
)
|
Tax liability assumed
|
|
|
(251,447
|
)
|
Other liabilities
|
|
|
(453,759
|
)
|
|
|
|
|
|
Total fair value of MSC II net assets
|
|
|
27,158,855
|
|
|
|
|
|
|
Bargain purchase gain
|
|
|
3,965,496
|
|
Estimated transaction costs associated with the Exchange Offer
and expensed in the period incurred
|
|
|
(250,000
|
)
|
|
|
|
|
|
Bargain purchase gain, net of estimated transaction costs
|
|
$
|
3,715,496
|
|
|
|
|
|
|
|
|
NOTE C:
|
PRELIMINARY
PRO FORMA ADJUSTMENTS
|
|
|
(1) |
Represents the non-cash reduction to the Investment in
affiliated Investment Manager to only reflect the remaining
discounted value of future net cash flows from third party
management fees not attributable to Main Street entities and
from management fees attributable to interests in MSC II not
owned by Main Street.
|
|
|
|
|
|
Investment in affiliated Investment Manager at
September 30, 2009
|
|
$
|
16,340,706
|
|
Less: discounted future cash flows for management fees not
attributable to Main Street entities
|
|
|
(478,048
|
)
|
|
|
|
|
|
Discounted future cash flows for management fees attributable to
MSC II
|
|
|
15,862,658
|
|
Remaining noncontrolling interest percentage
|
|
|
12
|
%
|
Remaining value of Investment Manager related to noncontrolling
interests in MSC II
|
|
|
1,903,519
|
|
|
|
|
|
|
Adjustment required to reduce value of Investment Manager for
management fees attributable to purchased interests in MSC II
|
|
$
|
13,959,139
|
|
|
|
|
|
|
|
|
(2) |
Represents the estimated transaction costs associated with the
Exchange Offer, including external audit fees, financial
advisory fees, and legal expenses.
|
S-115
MAIN
STREET CAPITAL CORPORATION
Notes to
Pro Forma Condensed Combined Financial Statements
(Continued)
(Unaudited)
|
|
(3)
|
Represents the write off of deferred financing costs including
the elimination of amortizing these costs to interest expense,
and the fair value adjustment to the MSC II SBIC debentures
associated with the option to elect fair value accounting under
ASC 825 for the acquired MSC II SBIC debentures.
|
|
(4)
|
Represents the impact of timing differences related to net
unrealized gains on certain MSC II equity investments placed in
a wholly owned taxable subsidiary.
|
|
(5)
|
Represents estimated fair value for the MSC II limited partner
interests not acquired in the Exchange Offer.
|
|
(6)
|
Net Asset Value Adjustments:
|
|
|
|
|
|
Exchange Offer stock consideration
|
|
$
|
19,934,296
|
(a)
|
MSC II historical Net Asset Value
|
|
|
(14,127,953
|
)(b)
|
Adjustment to investment in affiliated Investment Manager
|
|
|
(13,959,139
|
)(c)
|
Bargain Purchase Gain
|
|
|
3,715,496
|
(d)
|
|
|
|
|
|
Total Net Asset Value Adjustments
|
|
$
|
(4,437,300
|
)
|
|
|
|
|
|
|
|
|
(a) |
|
Represents the value of Main Street stock issued in the Exchange
Offer for the MSC II limited partners interests acquired. |
|
(b) |
|
Eliminate the historical net asset value of MSC II. |
|
(c) |
|
Represents the non-cash impact on investment in affiliated
Investment Manager. See Note (1) above. |
|
(d) |
|
Represents the excess of the fair value of net assets acquired
over the value of Main Street stock issued in the Exchange Offer
plus the fair value of the noncontrolling limited partner
interests. See Note B for the preliminary bargain purchase
gain calculation. |
|
|
(7) |
Weighted average shares outstanding have been adjusted to
reflect the following :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
Year Ended
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
Main Street weighted average shares outstanding
|
|
|
9,095,904
|
|
|
|
9,788,226
|
|
Estimated shares issued in connection with the Offer Exchange
(reflected as outstanding for all periods presented)
|
|
|
1,239,695
|
|
|
|
1,239,695
|
|
|
|
|
|
|
|
|
|
|
Main Street adjusted weighted average shares outstanding
|
|
|
10,335,599
|
|
|
|
11,027,921
|
|
|
|
|
|
|
|
|
|
|
|
|
(8)
|
Liquidation of $12 million in Main Street marketable
securities, and a draw of $12 million under Main
Streets investment credit facility in order to fund the
MSC II capital commitments for limited partner interests
purchased by Main Street to comply with SBA regulatory
requirements.
|
|
(9)
|
Estimated MSC II distribution to limited partners.
|
|
|
(10)
|
Represents the net losses of MSC II attributable to the
noncontrolling limited partner interests not purchased by Main
Street in the Exchange Offer.
|
|
(11)
|
Represents the increase in interest expense from the
$12 million draw under Main Streets investment credit
facility, partially offset by estimated interest income on the
drawn funds. See Note (8) above.
|
|
(12)
|
Represents the decrease in unrealized depreciation as a result
of the non-cash reduction to the Investment in affiliated
Investment Manager. See Note (1) above.
|
S-116
MAIN
STREET CAPITAL CORPORATION
Notes to
Pro Forma Condensed Combined Financial Statements
(Continued)
(Unaudited)
|
|
NOTE D:
|
PORTFOLIO
COMPOSITION
|
As of September 30, 2009, the pro forma combined core
investment portfolio reflects debt and equity investments in 39
core portfolio companies with an aggregate fair value of
$191,576,461 and a weighted average effective yield on its debt
investments of approximately 14.1%. Approximately 83% of the pro
forma combined core portfolio investments at cost were in the
form of debt investments and 92% of such debt investments at
cost were secured by first priority liens on the assets of the
portfolio companies as of September 30, 2009. At
September 30, 2009, the pro forma combined core investment
portfolio reflects equity ownership in approximately 92% of the
core portfolio companies and the average fully diluted equity
ownership in those portfolio companies was approximately 35%.
The weighted average yields were computed using the effective
interest rates for all debt investments at September 30,
2009, including amortization of deferred debt origination fees
and accretion of original issue discount but excluding any debt
investments on non-accrual status.
Summaries of the composition of the pro forma combined core
investment portfolio at cost and fair value as a percentage of
total core portfolio investments are shown in the following
table:
|
|
|
|
|
|
|
September 30,
|
|
Cost:
|
|
2009
|
|
|
First lien debt
|
|
|
76.4
|
%
|
Equity
|
|
|
12.5
|
%
|
Second lien debt
|
|
|
6.4
|
%
|
Equity warrants
|
|
|
4.7
|
%
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
Fair Value:
|
|
2009
|
|
|
First lien debt
|
|
|
65.5
|
%
|
Equity
|
|
|
17.2
|
%
|
Equity warrants
|
|
|
10.6
|
%
|
Second lien debt
|
|
|
6.7
|
%
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
|
|
|
The following table shows the pro forma combined core portfolio
composition by geographic region of the United States at cost
and fair value as a percentage of total core portfolio
investments. The geographic composition is determined by the
location of the corporate headquarters of the portfolio company.
|
|
|
|
|
|
|
September 30,
|
|
Cost:
|
|
2009
|
|
|
Southwest
|
|
|
42.0
|
%
|
West
|
|
|
34.5
|
%
|
Southeast
|
|
|
14.2
|
%
|
Midwest
|
|
|
5.8
|
%
|
Northeast
|
|
|
3.5
|
%
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
|
|
|
S-117
MAIN
STREET CAPITAL CORPORATION
Notes to
Pro Forma Condensed Combined Financial Statements
(Continued)
(Unaudited)
|
|
|
|
|
|
|
September 30,
|
|
Fair Value:
|
|
2009
|
|
|
Southwest
|
|
|
50.8
|
%
|
West
|
|
|
30.7
|
%
|
Southeast
|
|
|
8.0
|
%
|
Midwest
|
|
|
6.1
|
%
|
Northeast
|
|
|
4.4
|
%
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
|
|
|
The core portfolio investments of both Main Street and MSC II
are generally in lower middle-market companies conducting
business in a variety of industries. Set forth below are tables
showing the composition of the pro forma combined core portfolio
investments by industry at cost and fair value:
|
|
|
|
|
|
|
September 30,
|
|
Cost:
|
|
2009
|
|
|
Industrial equipment
|
|
|
14.0
|
%
|
Custom wood products
|
|
|
10.6
|
%
|
Professional services
|
|
|
9.6
|
%
|
Retail
|
|
|
8.5
|
%
|
Electronics manufacturing
|
|
|
7.2
|
%
|
Metal fabrication
|
|
|
6.7
|
%
|
Mining and minerals
|
|
|
6.3
|
%
|
Transportation/Logistics
|
|
|
6.0
|
%
|
Precast concrete manufacturing
|
|
|
5.6
|
%
|
Restaurant
|
|
|
4.5
|
%
|
Industrial services
|
|
|
4.4
|
%
|
Agricultural services
|
|
|
3.7
|
%
|
Manufacturing
|
|
|
3.1
|
%
|
Health care services
|
|
|
3.0
|
%
|
Health care products
|
|
|
2.3
|
%
|
Governmental services
|
|
|
1.6
|
%
|
Equipment rental
|
|
|
1.4
|
%
|
Infrastructure products
|
|
|
0.9
|
%
|
Information services
|
|
|
0.5
|
%
|
Distribution
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
|
|
|
S-118
MAIN
STREET CAPITAL CORPORATION
Notes to
Pro Forma Condensed Combined Financial Statements
(Continued)
(Unaudited)
|
|
|
|
|
|
|
September 30,
|
|
Fair Value:
|
|
2009
|
|
|
Professional services
|
|
|
11.1
|
%
|
Metal fabrication
|
|
|
10.5
|
%
|
Retail
|
|
|
8.9
|
%
|
Custom wood products
|
|
|
8.2
|
%
|
Precast concrete manufacturing
|
|
|
7.5
|
%
|
Industrial equipment
|
|
|
7.2
|
%
|
Transportation/Logistics
|
|
|
6.8
|
%
|
Electronics manufacturing
|
|
|
6.6
|
%
|
Health care services
|
|
|
6.5
|
%
|
Industrial services
|
|
|
6.1
|
%
|
Restaurant
|
|
|
5.3
|
%
|
Agricultural services
|
|
|
5.2
|
%
|
Manufacturing
|
|
|
3.3
|
%
|
Health care products
|
|
|
2.5
|
%
|
Governmental services
|
|
|
1.9
|
%
|
Equipment rental
|
|
|
1.5
|
%
|
Information services
|
|
|
0.4
|
%
|
Distribution
|
|
|
0.3
|
%
|
Infrastructure products
|
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
|
|
|
S-119
PROSPECTUS
$300,000,000
Main Street Capital
Corporation
Common Stock
We may offer, from time to time, up to $300,000,000 of our
common stock, $0.01 par value per share, in one or more
offerings. Our common stock may be offered at prices and on
terms to be disclosed in one or more supplements to this
prospectus. The offering price per share of our common stock,
less any underwriting commissions or discounts, will not be less
than the net asset value per share of our common stock at the
time of the offering, except (i) with the consent of the
majority of our common stockholders or (ii) under such
other circumstances as the Securities and Exchange Commission
may permit. On June 17, 2008, our common stockholders voted
to allow us to issue common stock at a price below net asset
value per share for a period of one year ending on the earlier
of June 16, 2009 or the date of our 2009 annual
stockholders meeting. Our stockholders did not specify a maximum
discount below net asset value at which we are able to issue our
common stock; however, we cannot issue shares of our common
stock below net asset value unless our Board of Directors
determines that it would be in our and our stockholders
best interests to do so. Shares of closed-end investment
companies such as us frequently trade at a discount to their net
asset value. This risk is separate and distinct from the risk
that our net asset value per share may decline. We cannot
predict whether our common stock will trade above, at or below
net asset value. You should read this prospectus and the
applicable prospectus supplement carefully before you invest in
our common stock.
Our common stock may be offered directly to one or more
purchasers through agents designated from time to time by us, or
to or through underwriters or dealers. The prospectus supplement
relating to the offering will identify any agents or
underwriters involved in the sale of our common stock, and will
disclose any applicable purchase price, fee, commission or
discount arrangement between us and our agents or underwriters
or among our underwriters or the basis upon which such amount
may be calculated. See Plan of Distribution. We may
not sell any of our common stock through agents, underwriters or
dealers without delivery of a prospectus supplement describing
the method and terms of the offering of such common stock.
We are a principal investment fund focused on providing
customized debt and equity financing to lower middle-market
companies that operate in diverse industries. We seek to fill
the current financing gap for lower middle-market businesses,
which have limited access to financing from commercial banks and
other traditional sources.
Our investment objective is to maximize our portfolios
total return by generating current income from our debt
investments and realizing capital appreciation from our equity
and equity-related investments, including warrants, convertible
securities and other rights to acquire equity securities in a
portfolio company. We are an internally managed, closed-end,
non-diversified management investment company that has elected
to be treated as a business development company under the
Investment Company Act of 1940.
Our common stock is listed on the Nasdaq Global Select Market
under the symbol MAIN. On April 23, 2009, the
last reported sale price of our common stock on the Nasdaq
Global Select Market was $11.70 per share.
Investing in our common stock involves a high degree of risk,
and should be considered highly speculative. See Risk
Factors beginning on page 10 to read about factors
you should consider, including the risk of leverage, before
investing in our common stock.
This prospectus and the accompanying prospectus supplement
contain important information about us that a prospective
investor should know before investing in our common stock.
Please read this prospectus and the accompanying prospectus
supplement before investing and keep them for future reference.
We file annual, quarterly and current reports, proxy statements
and other information with the Securities and Exchange
Commission. This information is available free of charge by
contacting us at 1300 Post Oak Boulevard, Suite 800,
Houston, Texas 77056 or by telephone at
(713) 350-6000
or on our website at www.mainstcapital.com. Information
contained on our website is not incorporated by reference into
this prospectus, and you should not consider that information to
be part of this prospectus. The Securities and Exchange
Commission also maintains a website at www.sec.gov that
contains such information.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
The date of this prospectus is May 1, 2009
TABLE OF
CONTENTS
|
|
|
|
|
|
|
Page
|
|
|
|
|
1
|
|
|
|
|
8
|
|
|
|
|
10
|
|
|
|
|
25
|
|
|
|
|
26
|
|
|
|
|
27
|
|
|
|
|
27
|
|
|
|
|
29
|
|
|
|
|
30
|
|
|
|
|
32
|
|
|
|
|
48
|
|
|
|
|
49
|
|
|
|
|
57
|
|
|
|
|
61
|
|
|
|
|
77
|
|
|
|
|
77
|
|
|
|
|
79
|
|
|
|
|
85
|
|
|
|
|
86
|
|
|
|
|
92
|
|
|
|
|
98
|
|
|
|
|
103
|
|
|
|
|
104
|
|
|
|
|
104
|
|
|
|
|
104
|
|
|
|
|
104
|
|
|
|
|
105
|
|
|
|
|
105
|
|
|
|
|
F-1
|
|
This prospectus is part of a registration statement that we have
filed with the Securities and Exchange Commission, or SEC, using
the shelf registration process. Under the shelf
registration process, we may offer, from time to time, up to
$300,000,000 of our common stock on terms to be determined at
the time of the offering. This prospectus provides you with a
general description of the common stock that we may offer. Each
time we use this prospectus to offer common stock, we will
provide a prospectus supplement that will contain specific
information about the terms of that offering. The prospectus
supplement may also add, update or change information contained
in this prospectus. Please carefully read this prospectus and
any accompanying prospectus supplement together with the
additional information described under Available
Information and Risk Factors before you make
an investment decision.
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this
prospectus or any accompanying supplement to this prospectus.
You must not rely on any unauthorized information or
representations not contained in this prospectus or any
accompanying prospectus supplement as if we had authorized it.
This prospectus and any accompanying prospectus supplement do
not constitute an offer to sell or a solicitation of any offer
to buy any security other than the registered securities to
which they relate, nor do they constitute an offer to sell or a
solicitation of an offer to buy any securities in any
jurisdiction to any person to whom it is unlawful to make such
an offer or solicitation in such jurisdiction. The information
contained in this prospectus and any accompanying prospectus
supplement is accurate as of the dates on their covers.
PROSPECTUS
SUMMARY
This summary highlights some of the information in this
prospectus. It is not complete and may not contain all of the
information that you may want to consider. You should read the
entire prospectus and any prospectus supplement carefully,
including the section entitled Risk Factors.
Main Street Capital Corporation (MSCC) was formed
on March 9, 2007, for the purpose of (i) acquiring
100% of the equity interests of Main Street Mezzanine Fund, LP
(the Fund) and its general partner, Main Street
Mezzanine Management, LLC (the General Partner),
(ii) acquiring 100% of the equity interests of Main Street
Capital Partners, LLC (the Investment Manager),
(iii) raising capital in an initial public offering, which
was completed in October 2007 (the IPO), and
(iv) thereafter operating as an internally managed business
development company (BDC) under the Investment
Company Act of 1940, as amended (the 1940 Act). The
transactions discussed above were consummated in October 2007
and are collectively termed the Formation
Transactions. The Fund is licensed as a Small Business
Investment Company (SBIC) by the United States Small
Business Administration (SBA) and the Investment
Manager acts as the Funds manager and investment adviser.
The Investment Manager also acts as the manager and investment
adviser to Main Street Capital II, LP (MSC II), a
privately owned, affiliated SBIC which commenced investment
operations in January 2006. MSCC did not acquire any interest in
MSC II in connection with the Formation Transactions and
currently does not hold any equity interest in MSC II. Unless
otherwise noted or the context otherwise indicates, the terms
we, us, our and Main
Street refer to the Fund and the General Partner prior to
the IPO and to MSCC and its subsidiaries, including the Fund and
the General Partner, subsequent to the IPO.
Main
Street
We are a principal investment firm focused on providing
customized financing solutions to lower middle-market companies,
which we generally define as companies with annual revenues
between $10 million and $100 million. Our investment
objective is to maximize our portfolios total return by
generating current income from our debt investments and
realizing capital appreciation from our equity and
equity-related investments, including warrants, convertible
securities and other rights to acquire equity securities in a
portfolio company. Our investments generally range in size from
$2 million to $15 million. Our ability to invest
across a companys capital structure, from senior secured
loans to subordinated debt to equity securities, allows us to
offer portfolio companies a comprehensive suite of financing
solutions, or one-stop financing.
Our investments are made through both MSCC and the Fund. Since
the IPO, MSCC and the Fund have co-invested in substantially
every investment we have made. MSCC and the Fund share the same
investment strategies and criteria in the lower middle-market,
although they are subject to different regulatory regimes. See
Regulation. An investors return in MSCC will
depend, in part, on the Funds investment returns as the
Fund is a wholly owned subsidiary of MSCC.
We typically seek to work with entrepreneurs, business owners
and management teams to provide customized financing for
strategic acquisitions, business expansion and other growth
initiatives, ownership transitions and recapitalizations. In
structuring transactions, we seek to protect our rights, manage
our risk and create value by: (i) providing financing at
lower leverage ratios; (ii) generally taking first priority
liens on assets; and (iii) providing significant equity
incentives for management teams of our portfolio companies. We
seek to avoid competing with other capital providers for
transactions because we believe competitive transactions often
have execution risks and can result in potential conflicts among
creditors and lower returns due to more aggressive valuation
multiples and higher leverage ratios.
As of December 31, 2008, Main Street had debt and equity
investments in 31 portfolio companies. Approximately 84% of our
total portfolio investments at cost, excluding our 100% equity
interest in the Investment Manager, were in the form of debt
investments and 91% of such debt investments at cost were
secured by first priority liens on the assets of our portfolio
companies. As of December 31, 2008, Main Street had a
weighted average effective yield on its debt investments of 14%.
Weighted average yields are computed using the effective
interest rates for all debt investments at December 31,
2008, including amortization of deferred debt origination fees
and accretion of original issue discount. At December 31,
2008, we had equity
1
ownership in approximately 94% of our portfolio companies and
the average fully diluted equity ownership in those portfolio
companies was approximately 25%.
You should be aware that investments in the lower middle-market
carry a number of risks including, but not limited to, investing
in companies which have a limited operating history and
financial resources and other risks common to investing in below
investment grade debt and equity investments in private, smaller
companies. Please see Risk Factors Risks
Related to Our Investments for a more complete discussion
of the risks involved with investing in the lower middle-market.
Our principal executive offices are located at 1300 Post Oak
Boulevard, Suite 800, Houston, Texas 77056, and our
telephone number is
(713) 350-6000.
We maintain a website at
http://www.mainstcapital.com.
Information contained on our website is not incorporated by
reference into this prospectus or any prospectus supplement, and
you should not consider that information to be part of this
prospectus or any prospectus supplement.
Business
Strategies
Our investment objective is to maximize our portfolios
total return by generating current income from our debt
investments and realizing capital appreciation from our equity
and equity-related investments, including warrants, convertible
securities and other rights to acquire equity securities in a
portfolio company. We have adopted the following business
strategies to achieve our investment objective:
|
|
|
|
|
Delivering Customized Financing Solutions. We
believe our ability to provide a broad range of customized
financing solutions to lower middle-market companies sets us
apart from other capital providers that focus on providing a
limited number of financing solutions. We offer to our portfolio
companies customized debt financing solutions with equity
components that are tailored to the facts and circumstances of
each situation. Our ability to invest across a companys
capital structure, from senior secured loans to subordinated
debt to equity securities, allows us to offer our portfolio
companies a comprehensive suite of financing solutions, or
one-stop financing.
|
|
|
|
Focusing on Established Companies in the Lower
Middle-Market. We generally invest in companies
with established market positions, experienced management teams
and proven revenue streams. Those companies generally possess
better risk-adjusted return profiles than newer companies that
are building management or are in the early stages of building a
revenue base. In addition, established lower middle-market
companies generally provide opportunities for capital
appreciation.
|
|
|
|
Leveraging the Skills and Experience of Our Investment
Team. Our investment team has significant
experience in lending to and investing in lower middle-market
companies. The members of our investment team have broad
investment backgrounds, with prior experience at private
investment funds, investment banks and other financial services
companies, and currently include seven certified public
accountants and one chartered financial analyst. The expertise
of our investment team in analyzing, valuing, structuring,
negotiating and closing transactions should provide us with
competitive advantages by allowing us to consider customized
financing solutions and non-traditional and complex structures.
|
|
|
|
Investing Across Multiple Industries. We seek
to maintain a portfolio of investments that is appropriately
balanced among various companies, industries, geographic regions
and end markets. This portfolio balance is intended to mitigate
the potential effects of negative economic events for particular
companies, regions and industries.
|
|
|
|
Capitalizing on Strong Transaction Sourcing
Network. Our investment team seeks to leverage
its extensive network of referral sources for investments in
lower middle-market companies. We have developed a reputation in
our marketplace as a responsive, efficient and reliable source
of financing, which has created a growing stream of proprietary
deal flow for us.
|
|
|
|
Benefiting from Lower Cost of Capital. The
Funds SBIC license has allowed it to issue SBA-guaranteed
debentures. SBA-guaranteed debentures carry long-term fixed
rates that are generally lower than rates on comparable bank and
other debt. Because lower cost SBA leverage is, and will
continue
|
2
|
|
|
|
|
to be, a significant part of our capital base through the Fund,
our relative cost of debt capital should be lower than many of
our competitors. In addition, the SBIC leverage that we receive
through the Fund represents a stable, long-term component of our
capital structure.
|
Investment
Criteria
Our investment team has identified the following investment
criteria that it believes are important in evaluating
prospective portfolio companies. Our investment team uses these
criteria in evaluating investment opportunities. However, not
all of these criteria have been, or will be, met in connection
with each of our investments.
|
|
|
|
|
Proven Management Team with Meaningful Financial
Commitment. We look for operationally-oriented
management with direct industry experience and a successful
track record. In addition, we expect the management team of each
portfolio company to have meaningful equity ownership in the
portfolio company to better align our respective economic
interests. We believe management teams with these attributes are
more likely to manage the companies in a manner that protects
our debt investment and enhances the value of our equity
investment.
|
|
|
|
Established Companies with Positive Cash
Flow. We seek to invest in established companies
in the lower middle-market with sound historical financial
performance. We typically focus on companies that have
historically generated EBITDA (Earnings Before Interest, Taxes,
Depreciation and Amortization) of $1.0 million to
$10.0 million and commensurate levels of free cash flow. We
generally do not intend to invest in
start-up
companies or companies with speculative business plans.
|
|
|
|
Defensible Competitive Advantages/Favorable Industry
Position. We primarily focus on companies having
competitive advantages in their respective markets
and/or
operating in industries with barriers to entry, which may help
to protect their market position and profitability.
|
|
|
|
Exit Alternatives. We expect that the primary
means by which we exit our debt investments will be through the
repayment of our investment from internally generated cash flow
and/or
refinancing. In addition, we seek to invest in companies whose
business models and expected future cash flows may provide
alternate methods of repaying our investment, such as through a
strategic acquisition by other industry participants or a
recapitalization.
|
Formation
Transactions
As part of the Formation Transactions, the Investment Manager,
which employs all of the executive officers and other employees
of MSCC, became a wholly owned subsidiary of MSCC. However, the
Investment Manager is accounted for as a portfolio investment of
Main Street, since the Investment Manager is not a registered
investment company and since it conducts a significant portion
of its investment management activities for MSC II, a separate
SBIC fund in which MSCC does not have an equity interest. The
Investment Manager receives recurring investment management fees
from MSC II pursuant to a separate investment advisory
agreement, paid quarterly, which currently total
$3.3 million per year. The portfolio investment in the
Investment Manager is accounted for using fair value accounting,
with the fair value determined by MSCC and approved, in good
faith, by MSCCs Board of Directors. MSCCs valuation
of the Investment Manager is based upon the discounted net cash
flows from third party recurring investment managers fees. The
net cash flows utilized in the valuation of the Investment
Manager exclude any revenues and expenses from all related
parties (including MSCC) but include the management fees from
MSC II and an estimated allocation of costs related to providing
services to MSC II. For more information on the Investment
Manager, see Note D Wholly Owned
Investment Manager to our consolidated financial
statements.
In connection with the Formation Transactions, MSCC entered into
a support services agreement with the Investment Manager. The
agreement requires the Investment Manager to manage the
day-to-day
operational and investment activities of Main Street. The
Investment Manager generally incurs all normal operating and
administrative expenses, except those specifically required to
be borne by MSCC, which principally include costs that are
specific to MSCCs status as a publicly traded entity. The
expenses paid by the Investment
3
Manager include the cost of salaries and related benefits, rent,
equipment and other administrative costs required for Main
Streets
day-to-day
operations.
The Investment Manager is reimbursed for its expenses associated
with providing operational and investment management services to
MSCC and its subsidiaries. Each quarter, as part of the support
services agreement, MSCC makes payments to cover all expenses
incurred by the Investment Manager, less amounts the Investment
Manager receives from MSC II pursuant to a separate investment
advisory services agreement. Based on this separate investment
advisory services agreement, MSC II paid the Investment Manager
approximately $3.3 million in 2008 for these services.
The IPO involved the public offering and sale of
4,300,000 shares of our common stock, including shares sold
upon the underwriters exercise of the over-allotment
option, at a price to the public of $15.00 per share of our
common stock, resulting in net proceeds to us of approximately
$60.2 million, after deducting underwriters
commissions totaling approximately $4.3 million. As a
result of the IPO and the Formation Transactions described
above, we are a closed-end, non-diversified management
investment company that has elected to be treated as a BDC under
the 1940 Act. Because the Investment Manager, which employs all
of the executive officers and other employees of MSCC, is wholly
owned by us, we do not pay any external investment advisory
fees, but instead we incur the net operating costs associated
with employing investment and portfolio management professionals
through the Investment Manager.
Immediately following the completion of the Formation
Transactions, Main Street Equity Interests, Inc.
(MSEI) was created as a wholly-owned consolidated
subsidiary of MSCC to hold certain of our portfolio investments.
MSEI has elected for tax purposes to be treated as a taxable
entity and is taxed at normal corporate tax rates based on its
taxable income. The taxable income of MSEI may differ from its
book income due to deferred tax timing differences as well as
permanent differences.
We co-invested with MSC II in several existing portfolio
investments prior to the IPO, but did not co-invest with MSC II
subsequent to the IPO and prior to June 2008. On June 4,
2008, we received exemptive relief from the SEC to allow us to
resume co-investing with MSC II in accordance with the terms of
such exemptive relief.
The
Offering
We may offer, from time to time, up to $300,000,000 of our
common stock, on terms to be determined at the time of the
offering. Our common stock may be offered at prices and on terms
to be disclosed in one or more prospectus supplements. The
offering price per share of our common stock, less any
underwriting commissions or discounts, will not be less than the
net asset value per share of our common stock at the time of the
offering, except (i) with the consent of the majority of
our common stockholders (which we received from our stockholders
at our June 17, 2008 annual stockholders meeting, for a
period of one year ending on the earlier of June 16, 2009
or the date of our 2009 annual stockholders meeting) or
(ii) under such other circumstances as the SEC may permit.
Our stockholders did not specify a maximum discount below net
asset value at which we are able to issue our common stock;
however, we cannot issue shares of our common stock below net
asset value unless our Board of Directors determines that it
would be in our and our stockholders best interests to do
so.
Our common stock may be offered directly to one or more
purchasers by us or through agents designated from time to time
by us, or to or through underwriters or dealers. The prospectus
supplement relating to the offering will disclose the terms of
the offering, including the name or names of any agents or
underwriters involved in the sale of our common stock by us, the
purchase price, and any fee, commission or discount arrangement
between us and our agents or underwriters or among our
underwriters or the basis upon which such amount may be
calculated. See Plan of Distribution. We may not
sell any of our common stock through agents, underwriters or
dealers without delivery of a prospectus supplement describing
the method and terms of the offering of our common stock.
4
Set forth below is additional information regarding the offering
of our common stock:
|
|
|
Use of proceeds |
|
We intend to use all of the net proceeds from selling our common
stock to make investments in lower middle-market companies in
accordance with our investment objective and strategies
described in this prospectus or any prospectus supplement, pay
our operating expenses and dividends to our stockholders and for
general corporate purposes. Pending such use, we will invest the
net proceeds primarily in short-term securities consistent with
our BDC election and our election to be taxed as a regulated
investment company (RIC). See Use of
Proceeds. |
|
Nasdaq Global Select Market symbol |
|
MAIN |
|
Dividends |
|
We have paid quarterly, but, beginning in the fourth quarter of
2008, will pay monthly, dividends to our stockholders out of
assets legally available for distribution. Our dividends, if
any, will be determined by our Board of Directors. |
|
Taxation |
|
MSCC has elected to be treated for federal income tax purposes
as a RIC under Subchapter M of the Code. Accordingly, we
generally will not pay corporate-level federal income taxes on
any net ordinary income or capital gains that we distribute to
our stockholders as dividends. To maintain our RIC tax
treatment, we must meet specified
source-of-income
and asset diversification requirements and distribute annually
at least 90.0% of our net ordinary income and realized net
short-term capital gains in excess of realized net long-term
capital losses, if any. Depending on the level of taxable income
earned in a tax year, we may choose to carry forward taxable
income in excess of current year distributions into the next tax
year and pay a 4% excise tax on such income. Any such carryover
taxable income must be distributed through a dividend declared
prior to filing the final tax return related to the year which
generated such taxable income. See Material U.S. Federal
Income Tax Considerations. |
|
Dividend reinvestment plan |
|
We have adopted a dividend reinvestment plan for our
stockholders. The dividend reinvestment plan is an opt
out reinvestment plan. As a result, if we declare
dividends, then stockholders cash dividends will be
automatically reinvested in additional shares of our common
stock, unless they specifically opt out of the
dividend reinvestment plan so as to receive cash dividends.
Stockholders who receive dividends in the form of stock will be
subject to the same federal, state and local tax consequences as
stockholders who elect to receive their dividends in cash. See
Dividend Reinvestment Plan. |
|
Trading at a discount |
|
Shares of closed-end investment companies frequently trade at a
discount to their net asset value. This risk is separate and
distinct from the risk that our net asset value per share may
decline. We cannot predict whether our shares will trade above,
at or below net asset value. |
5
|
|
|
Risk factors |
|
Investing in our common stock involves a high degree of risk.
You should consider carefully the information found in
Risk Factors, including the following risks: |
|
|
|
The current state of the economy and financial
markets increases the liklihood of adverse effects on our
financial position and results of operations. Continued economic
adversity could impair our portfolio companies financial
positions and operating results and affect the industries in
which we invest, which could, in turn, harm our operating
results.
|
|
|
|
Our investment portfolio is and will continue to be
recorded at fair value, with our Board of Directors having final
responsibility for overseeing, reviewing and approving, in good
faith, our estimate of fair value and, as a result, there is and
will continue to be uncertainty as to the value of our portfolio
investments.
|
|
|
|
Our financial condition and results of operations
depends on our ability to effectively manage and deploy capital.
|
|
|
|
We may face increasing competition for investment
opportunities.
|
|
|
|
We have a limited operating history as a BDC and as
a RIC.
|
|
|
|
Regulations governing our operation as a BDC will
affect our ability to, and the way in which we raise additional
capital.
|
|
|
|
Our wholly-owned subsidiary, the Fund, is licensed
by the SBA, and therefore subject to SBIC regulations.
|
|
|
|
Because we borrow money, the potential for gain or
loss on amounts invested in us is magnified and may increase the
risk of investing in us.
|
|
|
|
We, through the Fund, issue debt
securities guaranteed by the SBA and sold in the capital
markets. As a result of its guarantee of the debt securities,
the SBA has fixed dollar claims on the assets of the Fund that
are superior to the claims of our common stockholders.
|
|
|
|
We will be subject to corporate-level income tax if
we are unable to qualify as a RIC under Subchapter M of the Code.
|
|
|
|
We may not be able to pay you dividends, our
dividends may not grow over time, and a portion of dividends
paid to you may be a return of capital.
|
|
|
|
Because we intend to distribute substantially all of
our income to our stockholders to maintain our status as a RIC,
we will continue to need additional capital to finance our
growth, and regulations governing our operation as a BDC will
affect our ability to, and the way in which we, raise additional
capital.
|
|
|
|
Stockholders may incur dilution if we sell shares of
our common stock in one or more offerings at prices below the
then current net asset value per share of our common stock or
issue securities to subscribe to, convert to or purchase shares
of our common stock.
|
6
|
|
|
|
|
Our investments in portfolio companies involve
higher levels of risk, and we could lose all or part of our
investment. Investing in lower middle-market companies involves
a number of significant risks. Among other things, these
companies:
|
|
|
|
may have limited financial resources and
may be unable to meet their obligations under their debt
instruments that we hold, which may be accompanied by a
deterioration in the value of any collateral and a reduction in
the likelihood of us realizing any guarantees from subsidiaries
or affiliates of our portfolio companies that we may have
obtained in connection with our investment, as well as a
corresponding decrease in the value of the equity components of
our investments;
|
|
|
|
may have shorter operating histories,
narrower product lines, smaller market shares and/or significant
customer concentrations than larger businesses, which tend to
render them more vulnerable to competitors actions and
market conditions, as well as general economic downturns;
|
|
|
|
are more likely to depend on the
management talents and efforts of a small group of persons;
therefore, the death, disability, resignation or termination of
one or more of these persons could have a material adverse
impact on our portfolio company and, in turn, on us;
|
|
|
|
generally have less predictable
operating results, may from time to time be parties to
litigation, may be engaged in rapidly changing businesses with
products subject to a substantial risk of obsolescence, and may
require substantial additional capital to support their
operations, finance expansion or maintain their competitive
position; and
|
|
|
|
generally have less publicly available
information about their businesses, operations and financial
condition. We are required to rely on the ability of our
management team and investment professionals to obtain adequate
information to evaluate the potential returns from investing in
these companies. If we are unable to uncover all material
information about these companies, we may not make a fully
informed investment decision, and may lose all or part of our
investment.
|
|
|
|
Our portfolio companies may incur debt that ranks
equally with, or senior to, our investments in such companies.
|
|
|
|
We are a non-diversified investment company within
the meaning of the 1940 Act, and therefore we are not limited
with respect to the proportion of our assets that may be
invested in securities of a single issuer.
|
|
|
|
Shares of closed-end investment companies, including
BDCs, may trade at a discount to their net asset value.
|
|
|
|
We may be unable to invest a significant portion of
the net proceeds from an offering on acceptable terms, which
could harm our financial condition and operating results.
|
7
|
|
|
|
|
The market price of our common stock may be volatile
and fluctuate significantly.
|
|
|
|
See Risk Factors beginning on page 10 for a
more complete discussion of these and other risks you should
carefully consider before deciding to invest in shares of our
common stock. |
|
Available Information |
|
We file annual, quarterly and current reports, proxy statements
and other information with the SEC under the Securities Exchange
Act of 1934, or the Exchange Act. You can inspect
any materials we file with the SEC, without charge, at the
SECs Public Reference Room at 100 F Street,
N.E., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330
for further information on the Public Reference Room. The
information we file with the SEC is available free of charge by
contacting us at 1300 Post Oak Boulevard, Suite 800,
Houston, TX 77056, by telephone at
(713) 350-6000
or on our website at
http://www.mainstcapital.com.
The SEC also maintains a website that contains reports, proxy
statements and other information regarding registrants,
including us, that file such information electronically with the
SEC. The address of the SECs web site is
http://www.sec.gov.
Information contained on our website or on the SECs web
site about us is not incorporated into this prospectus, and you
should not consider information contained on our website or on
the SECs website to be part of this prospectus. |
FEES AND
EXPENSES
The following table is intended to assist you in understanding
the costs and expenses that an investor in this offering will
bear directly or indirectly. We caution you that some of the
percentages indicated in the table below are estimates and may
vary. Except where the context suggests otherwise, whenever this
prospectus contains a reference to fees or expenses paid by
you, us or Main Street, or
that we will pay fees or expenses, stockholders will
indirectly bear such fees or expenses as investors in us.
|
|
|
|
|
Stockholder Transaction Expenses:
|
|
|
|
|
Sales load (as a percentage of offering price)
|
|
|
|
%(1)
|
Offering expenses
|
|
|
|
%(2)
|
Dividend reinvestment plan expenses
|
|
|
|
%(3)
|
Total stockholder transaction expenses (as a percentage of
offering price)
|
|
|
|
%(4)
|
Annual Expenses (as a percentage of net assets
attributable to common stock):
|
|
|
|
|
Operating expenses
|
|
|
6.3
|
%(5)
|
Interest payments on borrowed funds
|
|
|
2.8
|
%(6)
|
Total annual expenses
|
|
|
9.1
|
%(7)
|
|
|
|
(1) |
|
In the event that our common stock is sold to or through
underwriters, a corresponding prospectus supplement will
disclose the applicable sales load. |
|
(2) |
|
In the event that we conduct on offering of our common stock, a
corresponding prospectus supplement will disclose the estimated
offering expenses. |
|
|
|
|
|
(3) |
|
The expenses of administering our dividend reinvestment plan are
included in operating expenses. |
|
(4) |
|
Total stockholder transaction expenses may include sales load
and will be disclosed in a future prospectus supplement, if any. |
|
(5) |
|
Operating expenses include the expenses of the Investment
Manager as if it were consolidated with MSCC for accounting
purposes, including expenses incurred by the Investment Manager
in managing MSC II |
8
|
|
|
|
|
pursuant to an investment advisory services agreement between
the Investment Manager and MSC II and other third party
consulting arrangements. Based on this investment advisory
services agreement, MSC II paid the Investment Manager
approximately $3.3 million in 2008 for these services. In
accordance with the terms of the support services agreement
between MSCC and the Investment Manager, MSCC is only required
to reimburse the Investment Manager for expenses incurred by the
Investment Manager in providing investment management and other
services to MSCC less amounts the Investment Manager receives
from MSC II and other third parties. Consequently, MSCC is only
incurring the expenses of the Investment Manager net of fees
received for third party investment advisory and consulting
services. Our percentage of operating expenses to net assets
attributable to common stock only including the expenses
incurred by MSCC net of the investment advisory and consulting
service fees received by the Investment Manager from MSC II and
other third parties would be 3.4%. |
|
(6) |
|
Interest payments on borrowed funds principally consist of
approximately $3.2 million of annual interest payments on
funds borrowed directly by the Fund. As of December 31,
2008, the Fund had $55.0 million of outstanding
indebtedness guaranteed by the SBA. This does not include
MSCCs undrawn $30 million investment credit facility
which would bear interest, subject to MSCCs election, on a
per annum basis equal to (i) the applicable LIBOR rate plus
2.75% or (ii) the applicable base rate plus 0.75%. |
|
(7) |
|
The total annual expenses are the sum of operating expenses and
interest payments on borrowed funds. In the future we may borrow
money to leverage our net assets and increase our total assets. |
Example
The following example demonstrates the projected dollar amount
of total cumulative expenses that would be incurred over various
periods with respect to a hypothetical investment in our common
stock. In calculating the following expense amounts, we have
assumed we would have no additional leverage and that our annual
operating expenses would remain at the levels set forth in the
table above. In the event that shares to which this prospectus
relates are sold to or through underwriters, a corresponding
prospectus supplement will restate this example to reflect the
applicable sales load.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Year
|
|
|
3 Years
|
|
|
5 Years
|
|
|
10 Years
|
|
|
You would pay the following expenses on a $1,000 investment,
assuming a 5.0% annual return
|
|
$
|
94
|
|
|
$
|
270
|
|
|
$
|
430
|
|
|
$
|
774
|
|
The example and the expenses in the table above should not be
considered a representation of our future expenses, and actual
expenses may be greater or less than those shown. While the
example assumes, as required by the SEC, a 5.0% annual return,
our performance will vary and may result in a return greater or
less than 5.0%. In addition, while the example assumes
reinvestment of all dividends at net asset value, participants
in our dividend reinvestment plan will receive a number of
shares of our common stock, determined by dividing the total
dollar amount of the dividend payable to a participant by
(i) the market price per share of our common stock at the
close of trading on the dividend payment date in the event that
we use newly issued shares to satisfy the share requirements of
the divided reinvestment plan or (ii) the average purchase
price of all shares of common stock purchased by the
administrator of the dividend reinvestment plan in the event
that shares are purchased in the open market to satisfy the
share requirements of the dividend reinvestment plan, which may
be at, above or below net asset value. See Dividend
Reinvestment Plan for additional information regarding our
dividend reinvestment plan.
9
RISK
FACTORS
Investing in our common stock involves a number of
significant risks. In addition to the other information
contained in this prospectus and any accompanying prospectus
supplement, you should consider carefully the following
information before making an investment in our common stock. The
risks set out below are not the only risks we face. Additional
risks and uncertainties not presently known to us or not
presently deemed material by us might also impair our operations
and performance. If any of the following events occur, our
business, financial condition and results of operations could be
materially and adversely affected. In such case, our net asset
value and the trading price of our common stock could decline,
and you may lose all or part of your investment.
Risks
Relating to Economic Conditions
The
current state of the economy and financial markets increases the
likelihood of adverse effects on our financial position and
results of operations. Continued economic adversity could impair
our portfolio companies financial positions and operating
results and affect the industries in which we invest, which
could, in turn, harm our operating results.
Beginning in late 2007, the United States entered a recession.
Throughout 2008, the economy continued to deteriorate and many
believe that the current recession could continue for an
extended period. During 2008, banks and others in the financial
services industry reported significant write-downs in the fair
value of their assets, which has led to the failure of a number
of banks and investment companies, a number of distressed
mergers and acquisitions, the government take-over of the
nations two largest government-sponsored mortgage
companies, and the passage of the $700 billion Emergency
Economic Stabilization Act of 2008 in October 2008 and the
$787 billion American Recovery and Reinvestment Act of 2009
(the 2009 Stimulus Bill). In addition, the stock
market has declined significantly, with both the S&P 500
and the NASDAQ Global Select Market (on which our stock trades),
declining by nearly 40% between December 31, 2007 and
December 31, 2008. As the recession deepened during 2008,
unemployment rose and consumer confidence declined, which led to
significant reductions in spending by both consumers and
businesses.
Although we have been able to secure access to additional
liquidity, including the recently obtained $30 million
investment credit facility and the increase in available
leverage through the SBIC program as part of the 2009 Stimulus
Bill, the current turmoil in the debt markets and uncertainty in
the equity capital markets provides no assurance that debt or
equity capital will be available to us in the future on
favorable terms, or at all.
The deterioration in consumer confidence and a general reduction
in spending by both consumers and businesses has had an adverse
effect on a number of the industries in which some of our
portfolio companies operate. In the event that the United States
economy remains in a protracted period of weakness, the results
of some of the lower middle-market companies like those in which
we invest, will continue to experience deterioration, which
could ultimately lead to difficulty in meeting their debt
service requirements and an increase in their defaults. In
addition, the end markets for certain of our portfolio
companies products and services have experienced, and
continue to experience, negative economic trends. We can provide
no assurance that the performance of certain of our portfolio
companies will not be negatively impacted by economic or other
conditions which could have a negative impact on our future
results.
Risks
Relating to Our Business and Structure
Our
investment portfolio is and will continue to be recorded at fair
value, with our Board of Directors having final responsibility
for overseeing, reviewing and approving, in good faith, our
estimate of fair value and, as a result, there is and will
continue to be uncertainty as to the value of our portfolio
investments.
Under the 1940 Act, we are required to carry our portfolio
investments at market value or, if there is no readily available
market value, at fair value as determined by us with our Board
of Directors having final responsibility for overseeing,
reviewing and approving, in good faith, our estimate of fair
value. Typically, there is not a public market for the
securities of the privately held companies in which we have
invested and
10
will generally continue to invest. As a result, we value these
securities quarterly at fair value based on input from
management, a third party independent valuation firm and our
audit committee and with the oversight, review and approval of
our Board of Directors.
The determination of fair value and consequently, the amount of
unrealized gains and losses in our portfolio, are to a certain
degree, subjective and dependent on a valuation process approved
by our Board of Directors. Certain factors that may be
considered in determining the fair value of our investments
include external events, such as private mergers, sales and
acquisitions involving comparable companies. Because such
valuations, and particularly valuations of private securities
and private companies, are inherently uncertain, may fluctuate
over short periods of time and may be based on estimates, our
determinations of fair value may differ materially from the
values that would have been used if a ready market for these
securities existed. Due to this uncertainty, our fair value
determinations may cause our net asset value on a given date to
materially understate or overstate the value that we may
ultimately realize on one or more of our investments. As a
result, investors purchasing our common stock based on an
overstated net asset value would pay a higher price than the
value of our investments might warrant. Conversely, investors
selling shares during a period in which the net asset value
understates the value of our investments will receive a lower
price for their shares than the value of our investments might
warrant.
Our
financial condition and results of operations depends on our
ability to effectively manage and deploy capital.
Our ability to achieve our investment objective of maximizing
our portfolios total return by generating current income
from our debt investments and capital appreciation from our
equity and equity-related investments, including warrants,
convertible securities and other rights to acquire equity
securities in a portfolio company, depends on our ability to
effectively manage and deploy capital, which depends, in turn,
on our investment teams ability to identify, evaluate and
monitor, and our ability to finance and invest in, companies
that meet our investment criteria.
Accomplishing our investment objective on a cost-effective basis
is largely a function of our investment teams handling of
the investment process, its ability to provide competent,
attentive and efficient services and our access to investments
offering acceptable terms. In addition to monitoring the
performance of our existing investments, members of our
investment team are also called upon, from time to time, to
provide managerial assistance to some of our portfolio
companies. These demands on their time may distract them or slow
the rate of investment.
Even if we are able to grow and build upon our investment
operations, any failure to manage our growth effectively could
have a material adverse effect on our business, financial
condition, results of operations and prospects. The results of
our operations will depend on many factors, including the
availability of opportunities for investment, readily accessible
short and long-term funding alternatives in the financial
markets and economic conditions. Furthermore, if we cannot
successfully operate our business or implement our investment
policies and strategies as described herein, it could negatively
impact our ability to pay dividends.
We may
face increasing competition for investment
opportunities.
We compete for investments with other BDCs and investment funds
(including private equity funds, mezzanine funds and other
SBICs), as well as traditional financial services companies such
as commercial banks and other sources of funding. Many of our
competitors are substantially larger and have considerably
greater financial, technical and marketing resources than we do.
For example, some competitors may have a lower cost of capital
and access to funding sources that are not available to us,
including from federal government agencies through federal
rescue programs such as the U.S. Department of
Treasurys Financial Stability Plan (formerly known as the
Troubled Asset Relief Program). In addition, some of our
competitors may have higher risk tolerances or different risk
assessments than we have. These characteristics could allow our
competitors to consider a wider variety of investments,
establish more relationships and offer better pricing and more
flexible structuring than we are able to do. We may lose
investment opportunities if we do not match our
competitors pricing, terms and structure. If we are forced
to match our competitors pricing, terms
11
and structure, we may not be able to achieve acceptable returns
on our investments or may bear substantial risk of capital loss.
A significant part of our competitive advantage stems from the
fact that the market for investments in lower middle-market
companies is underserved by traditional commercial banks and
other financing sources. A significant increase in the number
and/or the
size of our competitors in this target market could force us to
accept less attractive investment terms. Furthermore, many of
our competitors have greater experience operating under, or are
not subject to, the regulatory restrictions that the 1940 Act
imposes on us as a BDC.
We are
dependent upon our key investment personnel for our future
success.
We depend on the members of our investment team, particularly
Vincent D. Foster, Todd A. Reppert, Rodger A. Stout, Curtis L.
Hartman, Dwayne L. Hyzak and David L. Magdol, for the
identification, review, final selection, structuring, closing
and monitoring of our investments. These employees have
significant investment expertise and relationships that we rely
on to implement our business plan. Although we have entered into
employment agreements with Messrs, Reppert, Stout, Hartman,
Hyzak and Magdol and a non-compete agreement with
Mr. Foster, we have no guarantee that they will remain
employed with us. If we lose the services of these individuals,
we may not be able to operate our business as we expect, and our
ability to compete could be harmed, which could cause our
operating results to suffer.
Our
success depends on attracting and retaining qualified personnel
in a competitive environment.
Our growth will require that we retain new investment and
administrative personnel in a competitive market. Our ability to
attract and retain personnel with the requisite credentials,
experience and skills depends on several factors including, but
not limited to, our ability to offer competitive wages, benefits
and professional growth opportunities. Many of the entities,
including investment funds (such as private equity funds and
mezzanine funds) and traditional financial services companies,
with which we compete for experienced personnel have greater
resources than we have.
The competitive environment for qualified personnel may require
us to take certain measures to ensure that we are able to
attract and retain experienced personnel. Such measures may
include increasing the attractiveness of our overall
compensation packages, altering the structure of our
compensation packages through the use of additional forms of
compensation, or other steps. The inability to attract and
retain experienced personnel would have a material adverse
effect on our business.
Our
business model depends to a significant extent upon strong
referral relationships, and our inability to maintain or develop
these relationships, as well as the failure of these
relationships to generate investment opportunities, could
adversely affect our business.
We expect that members of our management team will maintain
their relationships with intermediaries, financial institutions,
investment bankers, commercial bankers, attorneys, accountants,
consultants and other individuals within our network, and we
will rely to a significant extent upon these relationships to
provide us with potential investment opportunities. If our
management team fails to maintain its existing relationships or
develop new relationships with sources of investment
opportunities, we will not be able to grow our investment
portfolio. In addition, individuals with whom members of our
management team have relationships are not obligated to provide
us with investment opportunities, and, therefore, there is no
assurance that such relationships will generate investment
opportunities for us.
We
have a limited operating history as a BDC and as a
RIC.
The 1940 Act imposes numerous constraints on the operations of
BDCs. Prior to the completion of the IPO, we did not operate,
and our management team had no experience operating, as a BDC
under the 1940 Act or as a RIC under Subchapter M of the Code.
As a result, we have limited operating results under these
regulatory frameworks that can demonstrate either their effect
on our business or our ability to manage our business under
these frameworks. Our management teams limited experience
in managing a portfolio of assets under such constraints may
hinder our ability to take advantage of attractive investment
opportunities and, as a
12
result, achieve our investment objective. Furthermore, any
failure to comply with the requirements imposed on BDCs by the
1940 Act could cause the SEC to bring an enforcement action
against us. If we do not remain a BDC, we might be regulated as
a registered closed-end investment company under the 1940 Act,
which would further decrease our operating flexibility.
Regulations
governing our operation as a BDC will affect our ability to, and
the way in which we raise additional capital.
Our business will require capital to operate and grow. We may
acquire such additional capital from the following sources:
Senior Securities. We may issue debt
securities or preferred stock
and/or
borrow money from banks or other financial institutions, which
we refer to collectively as senior securities. As a result of
issuing senior securities, we will be exposed to additional
risks, including the following:
|
|
|
|
|
Under the provisions of the 1940 Act, we are permitted, as a
BDC, to issue senior securities only in amounts such that our
asset coverage, as defined in the 1940 Act, equals at least 200%
immediately after each issuance of senior securities. If the
value of our assets declines, we may be unable to satisfy this
test. If that happens, we will be prohibited from issuing debt
securities or preferred stock
and/or
borrowing money from banks or other financial institutions until
such time as we satisfy this test.
|
|
|
|
Any amounts that we use to service our debt or make payments on
preferred stock will not be available for dividends to our
common stockholders.
|
|
|
|
It is likely that any senior securities or other indebtedness we
issue will be governed by an indenture or other instrument
containing covenants restricting our operating flexibility.
Additionally, some of these securities or other indebtedness may
be rated by rating agencies, and in obtaining a rating for such
securities and other indebtedness, we may be required to abide
by operating and investment guidelines that further restrict
operating and financial flexibility.
|
|
|
|
We and, indirectly, our stockholders will bear the cost of
issuing and servicing such securities and other indebtedness.
|
|
|
|
Preferred stock or any convertible or exchangeable securities
that we issue in the future may have rights, preferences and
privileges more favorable than those of our common stock,
including separate voting rights and could delay or prevent a
transaction or a change in control to the detriment of the
holders of our common stock.
|
Additional Common Stock. We are not generally
able to issue and sell our common stock at a price below net
asset value per share. We may, however, sell our common stock,
warrants, options or rights to acquire our common stock, at a
price below the current net asset value of the common stock if
our Board of Directors determines that such sale is in the best
interests of our stockholders, and our stockholders approve such
sale. See Stockholders may incur dilution if
we sell shares of our common stock in one or more offerings at
prices below the then current net asset value per share of our
common stock or issue securities to subscribe to, convert to or
purchase shares of our common stock for a discussion of
proposals approved by our stockholders that permit us to issue
shares of our common stock below net asset value. We may also
make rights offerings to our stockholders at prices per share
less than the net asset value per share, subject to applicable
requirements of the 1940 Act. If we raise additional funds by
issuing more common stock or senior securities convertible into,
or exchangeable for, our common stock, the percentage ownership
of our stockholders at that time would decrease, and they may
experience dilution. Moreover, we can offer no assurance that we
will be able to issue and sell additional equity securities in
the future, on favorable terms or at all.
13
Our
wholly-owned subsidiary, the Fund, is licensed by the SBA, and
therefore subject to SBIC regulations.
The Fund, our wholly-owned subsidiary, is licensed to act as a
small business investment company and is regulated by the SBA.
The SBA also places certain limitations on the financing terms
of investments by SBICs in portfolio companies and prohibits
SBICs from providing funds for certain purposes or to businesses
in a few prohibited industries. Compliance with SBIC
requirements may cause the Fund to forego attractive investment
opportunities that are not permitted under SBIC regulations.
Further, the SBIC regulations require that a licensed SBIC be
periodically examined and audited by the SBA to determine its
compliance with the relevant SBIC regulations. The SBA
prohibits, without prior SBA approval, a change of
control of an SBIC or transfers that would result in any
person (or a group of persons acting in concert) owning 10% or
more of a class of capital stock of a licensed SBIC. If the Fund
fails to comply with applicable SBIC regulations, the SBA could,
depending on the severity of the violation, limit or prohibit
its use of debentures, declare outstanding debentures
immediately due and payable,
and/or limit
it from making new investments. In addition, the SBA can revoke
or suspend a license for willful or repeated violation of, or
willful or repeated failure to observe, any provision of the
Small Business Investment Act of 1958 or any rule or regulation
promulgated thereunder. Such actions by the SBA would, in turn,
negatively affect us because the Fund is our wholly owned
subsidiary.
Because
we borrow money, the potential for gain or loss on amounts
invested in us is magnified and may increase the risk of
investing in us.
Borrowings, also known as leverage, magnify the potential for
gain or loss on invested equity capital. As we use leverage to
partially finance our investments, you will experience increased
risks of investing in our common stock. We, through the Fund,
issue debt securities guaranteed by the SBA and sold in the
capital markets. As a result of its guarantee of the debt
securities, the SBA has fixed dollar claims on the assets of the
Fund that are superior to the claims of our common stockholders.
We may also borrow from banks and other lenders, including under
the $30 million, three-year investment credit facility we
entered into in October 2008. See Managements
Discussion and Analysis of Financial Condition and Results of
Operations Capital Resources for a discussion
regarding the two credit facilities into which we have entered.
If the value of our assets increases, then leveraging would
cause the net asset value attributable to our common stock to
increase more sharply than it would have had we not leveraged.
Conversely, if the value of our assets decreases, leveraging
would cause net asset value to decline more sharply than it
otherwise would have had we not leveraged our business.
Similarly, any increase in our income in excess of interest
payable on the borrowed funds would cause our net investment
income to increase more than it would without the leverage,
while any decrease in our income would cause net investment
income to decline more sharply than it would have had we not
borrowed. Such a decline could negatively affect our ability to
pay common stock dividends. Leverage is generally considered a
speculative investment technique.
As of December 31, 2008, we, through the Fund, had
$55 million of outstanding indebtedness guaranteed by the
SBA, which had a weighted average annualized interest cost of
approximately 5.8% (exclusive of deferred financing costs). The
debentures guaranteed by the SBA have a maturity of ten years
and require semi-annual payments of interest. We will need to
generate sufficient cash flow to make required interest payments
on the debentures. If we are unable to meet the financial
obligations under the debentures, the SBA, as a creditor, will
have a superior claim to the assets of the Fund over our
stockholders in the event we liquidate or the SBA exercises its
remedies under such debentures as the result of a default by us.
14
Illustration. The following table illustrates
the effect of leverage on returns from an investment in our
common stock assuming various annual returns, net of expenses.
The calculations in the table below are hypothetical and actual
returns may be higher or lower than those appearing below.
Assumed
Return on Our Portfolio(1)
(net of expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10.0)%
|
|
(5.0)%
|
|
0.0%
|
|
5.0%
|
|
10.0%
|
|
Corresponding net return to common stockholder
|
|
|
(18.0
|
)%
|
|
|
(10.4
|
)%
|
|
|
(2.8
|
)%
|
|
|
4.8
|
%
|
|
|
12.3
|
%
|
|
|
|
(1) |
|
Assumes $170.6 million in total assets, $55 million in
debt outstanding, $112.4 million in net assets, and an
average cost of funds of 5.8%. Actual interest payments may be
different. |
Our ability to achieve our investment objective may depend in
part on our ability to achieve additional leverage on favorable
terms by issuing debentures guaranteed by the SBA, through the
Fund, or by borrowing from banks or insurance companies, and
there can be no assurance that such additional leverage can in
fact be achieved.
SBIC
regulations limit the outstanding dollar amount of
SBA-guaranteed debentures that may be issued by an SBIC or group
of SBICs under common control.
The SBIC regulations currently limit the dollar amount of
SBA-guaranteed debentures that can be issued by any one SBIC or
group of SBICs under common control to $225 million.
Moreover, an SBIC may not generally borrow an amount in excess
of two times its regulatory capital. Because of our investment
teams affiliations with MSC II, a privately owned SBIC
which commenced investment operations in January 2006, the Fund
and MSC II may be deemed to be a group of affiliated SBICs under
common control. Thus, the dollar amount of SBA-guaranteed
debentures that can be issued collectively by the Fund and MSC
II may be limited to $225 million, absent relief from the
SBA. While we cannot presently predict whether or not we,
through the Fund, will borrow the maximum permitted amount, if
we reach the maximum dollar amount of SBA guaranteed debentures
permitted, and thereafter require additional capital, our cost
of capital may increase, and there is no assurance that we will
be able to obtain additional financing on acceptable terms.
The Funds current status as an SBIC does not automatically
assure that it will continue to receive SBA-guaranteed debenture
funding. Receipt of SBA leverage funding is dependent upon the
Fund continuing to be in compliance with SBIC regulations and
policies. Moreover, the amount of SBA leverage funding available
to SBICs is dependent upon annual Congressional authorizations
and in the future may be subject to annual Congressional
appropriations. There can be no assurance that there will be
sufficient debenture funding available at the times desired by
the Fund.
We may
experience fluctuations in our quarterly results.
We could experience fluctuations in our quarterly operating
results due to a number of factors, including our ability or
inability to make investments in companies that meet our
investment criteria, the interest rate payable on the debt
securities we acquire, the level of portfolio dividend and fee
income, the level of our expenses, variations in and the timing
of the recognition of realized and unrealized gains or losses,
the degree to which we encounter competition in our markets and
general economic conditions. As a result of these factors,
results for any period should not be relied upon as being
indicative of performance in future periods.
Our
Board of Directors may change our operating policies and
strategies without prior notice or stockholder approval, the
effects of which may be adverse.
Our Board of Directors has the authority to modify or waive our
current operating policies, investment criteria and strategies
without prior notice and without stockholder approval. We cannot
predict the effect any changes to our current operating
policies, investment criteria and strategies would have on our
business, net
15
asset value, operating results and value of our stock. However,
the effects might be adverse, which could negatively impact our
ability to pay you dividends and cause you to lose all or part
of your investment.
We
will be subject to corporate-level income tax if we are unable
to qualify as a RIC under Subchapter M of the
Code.
To maintain RIC tax treatment under the Code, we must meet the
following annual distribution, source income and asset
diversification requirements:
|
|
|
|
|
The annual distribution requirement for a RIC will be satisfied
if we distribute to our stockholders on an annual basis at least
90% of our net ordinary income and realized net short-term
capital gains in excess of realized net long-term capital
losses, if any. Depending on the level of taxable income earned
in a tax year, we may choose to carry forward taxable income in
excess of current year distributions into the next tax year and
pay a 4% excise tax on such income. Any such carryover taxable
income must be distributed through a dividend declared prior to
filing the final tax return related to the year which generated
such taxable income. For more information regarding tax
treatment, see Material U.S. Federal Income Tax
Considerations Taxation as a Regulated Investment
Company. Because we use debt financing, we are subject to
certain asset coverage ratio requirements under the 1940 Act and
are (and may in the future become) subject to certain financial
covenants under loan and credit agreements that could, under
certain circumstances, restrict us from making distributions
necessary to satisfy the distribution requirement. If we are
unable to obtain cash from other sources, we could fail to
qualify for RIC tax treatment and thus become subject to
corporate-level income tax.
|
|
|
|
The source income requirement will be satisfied if we obtain at
least 90% of our income for each year from distributions,
interest, gains from the sale of stock or securities or similar
sources.
|
|
|
|
The asset diversification requirement will be satisfied if we
meet certain asset diversification requirements at the end of
each quarter of our taxable year. To satisfy this requirement,
at least 50% of the value of our assets must consist of cash,
cash equivalents, U.S. Government securities, securities of
other RICs, and other acceptable securities; and no more than
25% of the value of our assets can be invested in the
securities, other than U.S. government securities or
securities of other RICs, of one issuer, of two or more issuers
that are controlled, as determined under applicable Code rules,
by us and that are engaged in the same or similar or related
trades or businesses or of certain qualified publicly
traded partnerships. Failure to meet these requirements
may result in our having to dispose of certain investments
quickly in order to prevent the loss of RIC status. Because most
of our investments will be in private companies, and therefore
will be relatively illiquid, any such dispositions could be made
at disadvantageous prices and could result in substantial losses.
|
If we fail to maintain RIC tax treatment for any reason and are
subject to corporate income tax, the resulting corporate taxes
could substantially reduce our net assets, the amount of income
available for distribution and the amount of our distributions.
We may
not be able to pay you dividends, our dividends may not grow
over time, and a portion of dividends paid to you may be a
return of capital.
We intend to pay monthly dividends to our stockholders out of
assets legally available for distribution. We cannot assure you
that we will achieve investment results that will allow us to
pay a specified level of cash dividends, previously projected
dividends for future periods, or
year-to-year
increases in cash dividends. Our ability to pay dividends might
be adversely affected by, among other things, the impact of one
or more of the risk factors described herein. In addition, the
inability to satisfy the asset coverage test applicable to us as
a BDC could limit our ability to pay dividends. All dividends
will be paid at the discretion of our Board of Directors and
will depend on our earnings, our financial condition,
maintenance of our RIC status, compliance with applicable BDC
regulations, the Funds compliance with applicable SBIC
regulations and such other factors as our Board of Directors may
deem relevant from time to time. We cannot assure you that we
will pay dividends to our stockholders in the future.
16
When we make monthly distributions, we will be required to
determine the extent to which such distributions are paid out of
current or accumulated earnings, recognized capital gains or
capital. To the extent there is a return of capital, investors
will be required to reduce their basis in our stock for federal
tax purposes. In the future, our distributions may include a
return of capital.
We may
have difficulty paying our required distributions if we
recognize income before or without receiving cash representing
such income.
For federal income tax purposes, we will include in income
certain amounts that we have not yet received in cash, such as
original issue discount, which may arise if we receive warrants
in connection with the origination of a loan or possibly in
other circumstances, or contractual
payment-in-kind,
or PIK, interest, which represents contractual interest added to
the loan balance and due at the end of the loan term. Such
original issue discounts or increases in loan balances as a
result of contractual PIK arrangements will be included in
income before we receive any corresponding cash payments. We
also may be required to include in income certain other amounts
that we will not receive in cash. Approximately 2.7% of our
total investment income for the year ended December 31,
2008 was attributable to paid in kind interest.
Since, in certain cases, we may recognize income before or
without receiving cash representing such income, we may have
difficulty meeting the annual distribution requirement necessary
to maintain RIC tax treatment under the Code. Accordingly, we
may have to sell some of our investments at times
and/or at
prices we would not consider advantageous, raise additional debt
or equity capital or forgo new investment opportunities for this
purpose. If we are not able to obtain cash from other sources,
we may fail to qualify for RIC tax treatment and thus become
subject to corporate-level income tax. For additional discussion
regarding the tax implications of a RIC, please see
Material U.S. Federal Income Tax
Considerations Taxation as a Regulated Investment
Company.
We may
in the future choose to pay dividends in our own stock, in which
case you may be required to pay tax in excess of the cash you
receive.
We may distribute taxable dividends that are payable in part in
our stock. Under a recently issued IRS revenue procedure, up to
90% of any such taxable dividend for 2009 could be payable in
our stock. Taxable stockholders receiving such dividends will be
required to include the full amount of the dividend as ordinary
income (or as long-term capital gain to the extent such
distribution is properly designated as a capital gain dividend)
to the extent of our current and accumulated earnings and
profits for United States federal income tax purposes. As a
result, a U.S. stockholder may be required to pay tax with
respect to such dividends in excess of any cash received. If a
U.S. stockholder sells the stock it receives as a dividend
in order to pay this tax, the sales proceeds may be less than
the amount included in income with respect to the dividend,
depending on the market price of our stock at the time of the
sale. Furthermore, with respect to
non-U.S. stockholders,
we may be required to withhold U.S. tax with respect to
such dividends, including in respect of all or a portion of such
dividend that is payable in stock. In addition, if a significant
number of our stockholders determine to sell shares of our stock
in order to pay taxes owed on dividends, it may put downward
pressure on the trading price of our stock.
The
Fund, as an SBIC, may be unable to make distributions to us that
will enable us to meet or maintain RIC status, which could
result in the imposition of an entity-level tax.
In order for us to continue to qualify for RIC tax treatment and
to minimize corporate-level taxes, we will be required to
distribute substantially all of our net ordinary income and net
capital gain income, including income from certain of our
subsidiaries, which includes the income from the Fund. We will
be partially dependent on the Fund for cash distributions to
enable us to meet the RIC distribution requirements. The Fund
may be limited by the Small Business Investment Act of 1958, and
SBIC regulations governing SBICs, from making certain
distributions to us that may be necessary to enable us to
maintain our status as a RIC. We may have to request a waiver of
the SBAs restrictions for the Fund to make certain
distributions to maintain our eligibility for RIC status. We
cannot assure you that the SBA will grant such waiver and if the
Fund is unable
17
to obtain a waiver, compliance with the SBIC regulations may
result in loss of RIC tax treatment and a consequent imposition
of an entity-level tax on us.
Because
we intend to distribute substantially all of our income to our
stockholders to maintain our status as a RIC, we will continue
to need additional capital to finance our growth, and
regulations governing our operation as a BDC will affect our
ability to, and the way in which we, raise additional
capital.
In order to satisfy the requirements applicable to a RIC and to
minimize corporate-level taxes, we intend to distribute to our
stockholders substantially all of our net ordinary income and
net capital gain income. We may carry forward excess
undistributed taxable income into the next year, net of the 4%
excise tax. Any such carryover taxable income must be
distributed through a dividend declared prior to filing the
final tax return related to the year which generated such
taxable income. As a BDC, we generally are required to meet an
asset coverage ratio, as defined in the 1940 Act , of at least
200% immediately after each issuance of senior securities. This
requirement limits the amount that we may borrow. Because we
will continue to need capital to grow our investment portfolio,
this limitation may prevent us from incurring debt and require
us to raise additional equity at a time when it may be
disadvantageous to do so.
While we expect to be able to borrow and to issue additional
debt and equity securities, we cannot assure you that debt and
equity financing will be available to us on favorable terms, or
at all. In addition, as a BDC, we generally are not permitted to
issue equity securities priced below net asset value without
stockholder approval. If additional funds are not available to
us, we could be forced to curtail or cease new investment
activities, and our net asset value could decline.
Stockholders
may incur dilution if we sell shares of our common stock in one
or more offerings at prices below the then current net asset
value per share of our common stock or issue securities to
subscribe to, convert to or purchase shares of our common
stock.
At our 2008 annual meeting of stockholders, our stockholders
approved two proposals designed to allow us to access the
capital markets in ways that we were previously unable to as a
result of restrictions that, absent stockholder approval, apply
to BDCs under the 1940 Act. Specifically, our stockholders
approved proposals that (1) authorize us to sell shares of
our common stock below the then current net asset value per
share of our common stock in one or more offerings for a period
of one year ending on the earlier of June 16, 2009 or the
date of our 2009 annual meeting of stockholders and
(2) authorize us to issue securities to subscribe to,
convert to, or purchase shares of our common stock in one or
more offerings. Any decision to sell shares of our common stock
below the then current net asset value per share of our common
stock or securities to subscribe to, convert to, or purchase
shares of our common stock would be subject to the determination
by our Board of Directors that such issuance is in our and our
stockholders best interests.
If we were to sell shares of our common stock below net asset
value per share, such sales would result in an immediate
dilution to the net asset value per share. This dilution would
occur as a result of the sale of shares at a price below the
then current net asset value per share of our common
stock and a proportionately greater decrease in a
stockholders interest in our earnings and assets and
voting interest in us than the increase in our assets resulting
from such issuance. In addition, if we issue securities to
subscribe to, convert to or purchase shares of common stock, the
exercise or conversion of such securities would increase the
number of outstanding shares of our common stock. Any such
exercise would be dilutive on the voting power of existing
stockholders, and could be dilutive with regard to dividends and
our net asset value, and other economic aspects of the common
stock.
Because the number of shares of common stock that could be so
issued and the timing of any issuance is not currently known,
the actual dilutive effect cannot be predicted; however, the
example below illustrates the effect of dilution to existing
stockholders resulting from the sale of common stock at prices
below the net asset value of such shares.
18
Illustration: Example of Dilutive Effect of the Issuance of
Shares Below Net Asset Value. Assume that
Company XYZ has 1,000,000 total shares outstanding, $15,000,000
in total assets and $5,000,000 in total liabilities. The net
asset value per share of the common stock of Company XYZ is
$10.00. The following table illustrates the reduction to net
asset value, or NAV, and the dilution experienced by Stockholder
A following the sale of 40,000 shares of the common stock
of Company XYZ at $9.50 per share, a price below its NAV per
share.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior to Sale
|
|
|
Following Sale
|
|
|
Percentage
|
|
|
|
Below NAV
|
|
|
Below NAV
|
|
|
Change
|
|
|
Reduction to NAV
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Shares Outstanding
|
|
|
1,000,000
|
|
|
|
1,040,000
|
|
|
|
4.0
|
%
|
NAV per share
|
|
$
|
10.00
|
|
|
$
|
9.98
|
|
|
|
(0.2
|
)%
|
Dilution to Existing Stockholder
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Held by Stockholder A
|
|
|
10,000
|
|
|
|
10,000
|
(1)
|
|
|
0.0
|
%
|
Percentage Held by Stockholder A
|
|
|
1.00
|
%
|
|
|
0.96
|
%
|
|
|
(3.8
|
)%
|
Total Interest of Stockholder A in NAV
|
|
$
|
100,000
|
|
|
$
|
99,808
|
|
|
|
(0.2
|
)%
|
|
|
|
(1) |
|
Assumes that Stockholder A does not purchase additional shares
in the sale of shares below NAV. |
Changes
in laws or regulations governing our operations may adversely
affect our business or cause us to alter our business
strategy.
We, the Fund, and our portfolio companies are subject to
applicable local, state and federal laws and regulations,
including, without limitation, federal immigration laws and
regulations. New legislation may be enacted or new
interpretations, rulings or regulations could be adopted,
including those governing the types of investments we are
permitted to make, any of which could harm us and our
stockholders, potentially with retroactive effect. In addition,
any change to the SBAs current debenture SBIC program
could have a significant impact on our ability to obtain
lower-cost leverage, through the Fund, and, therefore, our
ability to compete with other finance companies.
Additionally, any changes to the laws and regulations governing
our operations relating to permitted investments may cause us to
alter our investment strategy in order to avail ourselves of new
or different opportunities. Such changes could result in
material differences to the strategies and plans set forth
herein and may result in our investment focus shifting from the
areas of expertise of our investment team to other types of
investments in which our investment team may have less expertise
or little or no experience. Thus, any such changes, if they
occur, could have a material adverse effect on our results of
operations and the value of your investment.
Terrorist
attacks, acts of war or natural disasters may affect any market
for our common stock, impact the businesses in which we invest
and harm our business, operating results and financial
condition.
Terrorist acts, acts of war or natural disasters may disrupt our
operations, as well as the operations of the businesses in which
we invest. Such acts have created, and continue to create,
economic and political uncertainties and have contributed to
global economic instability. Future terrorist activities,
military or security operations, or natural disasters could
further weaken the domestic/global economies and create
additional uncertainties, which may negatively impact the
businesses in which we invest directly or indirectly and, in
turn, could have a material adverse impact on our business,
operating results and financial condition. Losses from terrorist
attacks and natural disasters are generally uninsurable.
19
Risks
Related to Our Investments
Our
investments in portfolio companies involve higher levels of
risk, and we could lose all or part of our
investment.
Investing in lower middle-market companies involves a number of
significant risks. Among other things, these companies:
|
|
|
|
|
may have limited financial resources and may be unable to meet
their obligations under their debt instruments that we hold,
which may be accompanied by a deterioration in the value of any
collateral and a reduction in the likelihood of us realizing any
guarantees from subsidiaries or affiliates of our portfolio
companies that we may have obtained in connection with our
investment, as well as a corresponding decrease in the value of
the equity components of our investments;
|
|
|
|
may have shorter operating histories, narrower product lines,
smaller market shares
and/or
significant customer concentrations than larger businesses,
which tend to render them more vulnerable to competitors
actions and market conditions, as well as general economic
downturns;
|
|
|
|
are more likely to depend on the management talents and efforts
of a small group of persons; therefore, the death, disability,
resignation or termination of one or more of these persons could
have a material adverse impact on our portfolio company and, in
turn, on us;
|
|
|
|
generally have less predictable operating results, may from time
to time be parties to litigation, may be engaged in rapidly
changing businesses with products subject to a substantial risk
of obsolescence, and may require substantial additional capital
to support their operations, finance expansion or maintain their
competitive position; and
|
|
|
|
generally have less publicly available information about their
businesses, operations and financial condition. We are required
to rely on the ability of our management team and investment
professionals to obtain adequate information to evaluate the
potential returns from investing in these companies. If we are
unable to uncover all material information about these
companies, we may not make a fully informed investment decision,
and may lose all or part of our investment.
|
In addition, in the course of providing significant managerial
assistance to certain of our portfolio companies, certain of our
officers and directors may serve as directors on the boards of
such companies. To the extent that litigation arises out of our
investments in these companies, our officers and directors may
be named as defendants in such litigation, which could result in
an expenditure of funds (through our indemnification of such
officers and directors) and the diversion of management time and
resources.
The
lack of liquidity in our investments may adversely affect our
business.
We invest, and will continue to invest in companies whose
securities are not publicly traded, and whose securities will be
subject to legal and other restrictions on resale or will
otherwise be less liquid than publicly traded securities. The
illiquidity of these investments may make it difficult for us to
sell these investments when desired. In addition, if we are
required to liquidate all or a portion of our portfolio quickly,
we may realize significantly less than the value at which we had
previously recorded these investments. As a result, we do not
expect to achieve liquidity in our investments in the near-term.
Our investments are usually subject to contractual or legal
restrictions on resale or are otherwise illiquid because there
is usually no established trading market for such investments.
The illiquidity of most of our investments may make it difficult
for us to dispose of them at a favorable price, and, as a
result, we may suffer losses.
We may
not have the funds or ability to make additional investments in
our portfolio companies.
We may not have the funds or ability to make additional
investments in our portfolio companies. After our initial
investment in a portfolio company, we may be called upon from
time to time to provide additional funds to such company or have
the opportunity to increase our investment through the exercise
of a warrant to purchase common stock. There is no assurance
that we will make, or will have sufficient funds to make,
follow-on investments. Any decisions not to make a follow-on
investment or any inability on our part to make
20
such an investment may have a negative impact on a portfolio
company in need of such an investment, may result in a missed
opportunity for us to increase our participation in a successful
operation or may reduce the expected yield on the investment.
Our
portfolio companies may incur debt that ranks equally with, or
senior to, our investments in such companies.
We invest primarily in secured term debt as well as equity
issued by lower middle-market companies. Our portfolio companies
may have, or may be permitted to incur, other debt that ranks
equally with, or senior to, the debt in which we invest. By
their terms, such debt instruments may entitle the holders to
receive payment of interest or principal on or before the dates
on which we are entitled to receive payments with respect to the
debt instruments in which we invest. Also, in the event of
insolvency, liquidation, dissolution, reorganization or
bankruptcy of a portfolio company, holders of debt instruments
ranking senior to our investment in that portfolio company would
typically be entitled to receive payment in full before we
receive any distribution. After repaying such senior creditors,
such portfolio company may not have any remaining assets to use
for repaying its obligation to us. In the case of debt ranking
equally with debt instruments in which we invest, we would have
to share on an equal basis any distributions with other
creditors holding such debt in the event of an insolvency,
liquidation, dissolution, reorganization or bankruptcy of the
relevant portfolio company.
There
may be circumstances where our debt investments could be
subordinated to claims of other creditors or we could be subject
to lender liability claims.
Even though we may have structured certain of our investments as
secured loans, if one of our portfolio companies were to go
bankrupt, depending on the facts and circumstances, and based
upon principles of equitable subordination as defined by
existing case law, a bankruptcy court could subordinate all or a
portion of our claim to that of other creditors and transfer any
lien securing such subordinated claim to the bankruptcy estate.
The principles of equitable subordination defined by case law
have generally indicated that a claim may be subordinated only
if its holder is guilty of misconduct or where the senior loan
is re-characterized as an equity investment and the senior
lender has actually provided significant managerial assistance
to the bankrupt debtor. We may also be subject to lender
liability claims for actions taken by us with respect to a
borrowers business or instances where we exercise control
over the borrower. It is possible that we could become subject
to a lenders liability claim, including as a result of
actions taken in rendering significant managerial assistance or
actions to compel and collect payments from the borrower outside
the ordinary course of business.
Second
priority liens on collateral securing loans that we make to our
portfolio companies may be subject to control by senior
creditors with first priority liens. If there is a default, the
value of the collateral may not be sufficient to repay in full
both the first priority creditors and us.
Certain loans that we make are secured by a second priority
security interest in the same collateral pledged by a portfolio
company to secure senior debt owed by the portfolio company to
commercial banks or other traditional lenders. Often the senior
lender has procured covenants from the portfolio company
prohibiting the incurrence of additional secured debt without
the senior lenders consent. Prior to and as a condition of
permitting the portfolio company to borrow money from us secured
by the same collateral pledged to the senior lender, the senior
lender will require assurances that it will control the
disposition of any collateral in the event of bankruptcy or
other default. In many such cases, the senior lender will
require us to enter into an intercreditor agreement
prior to permitting the portfolio company to borrow from us.
Typically the intercreditor agreements we are requested to
execute expressly subordinate our debt instruments to those held
by the senior lender and further provide that the senior lender
shall control: (1) the commencement of foreclosure or other
proceedings to liquidate and collect on the collateral;
(2) the nature, timing and conduct of foreclosure or other
collection proceedings; (3) the amendment of any collateral
document; (4) the release of the security interests in
respect of any collateral; and (5) the waiver of defaults
under any security
21
agreement. Because of the control we may cede to senior lenders
under intercreditor agreements we may enter, we may be unable to
realize the proceeds of any collateral securing some of our
loans.
Finally, the value of the collateral securing our debt
investment will ultimately depend on market and economic
conditions, the availability of buyers and other factors.
Therefore, there can be no assurance that the proceeds, if any,
from the sale or sales of all of the collateral would be
sufficient to satisfy the loan obligations secured by our first
or second priority liens. There is also a risk that such
collateral securing our investments will decrease in value over
time, will be difficult to sell in a timely manner, will be
difficult to appraise and will fluctuate in value based upon the
success of the portfolio company and market conditions. If such
proceeds are not sufficient to repay amounts outstanding under
the loan obligations secured by our second priority liens, then
we, to the extent not repaid from the proceeds of the sale of
the collateral, will only have an unsecured claim against the
companys remaining assets, if any.
We are
a non-diversified investment company within the meaning of the
1940 Act, and therefore we are not limited with respect to the
proportion of our assets that may be invested in securities of a
single issuer.
We are classified as a non-diversified investment company within
the meaning of the 1940 Act, which means that we are not limited
by the 1940 Act with respect to the proportion of our assets
that we may invest in securities of a single issuer. Although we
seek to maintain a diversified portfolio in accordance with our
business strategies, to the extent that we assume large
positions in the securities of a small number of issuers, our
net asset value may fluctuate to a greater extent than that of a
diversified investment company as a result of changes in the
financial condition or the markets assessment of the
issuer. We may also be more susceptible to any single economic
or regulatory occurrence than a diversified investment company.
Beyond our RIC asset diversification requirements, we do not
have fixed guidelines for diversification, and our investments
could be concentrated in relatively few portfolio companies.
We
generally will not control our portfolio
companies.
We do not, and do not expect to, control the decision making in
many of our portfolio companies, even though we may have board
representation or board observation rights, and our debt
agreements may contain certain restrictive covenants. As a
result, we are subject to the risk that a portfolio company in
which we invest will make business decisions with which we
disagree and the management of such company, as representatives
of the holders of their common equity, will take risks or
otherwise act in ways that do not serve our interests as debt
investors. Due to the lack of liquidity for our investments in
non-traded companies, we may not be able to dispose of our
interests in our portfolio companies as readily as we would like
or at an appropriate valuation. As a result, a portfolio company
may make decisions that would decrease the value of our
portfolio holdings.
Defaults
by our portfolio companies will harm our operating
results.
A portfolio companys failure to satisfy financial or
operating covenants imposed by us or other lenders could lead to
defaults and, potentially, termination of its loans and
foreclosure on its secured assets, which could trigger
cross-defaults under other agreements and jeopardize a portfolio
companys ability to meet its obligations under the debt or
equity securities that we hold. We may incur expenses to the
extent necessary to seek recovery upon default or to negotiate
new terms, which may include the waiver of certain financial
covenants, with a defaulting portfolio company.
Any
unrealized losses we experience on our loan portfolio may be an
indication of future realized losses, which could reduce our
income available for distribution.
As a BDC, we are required to carry our investments at market
value or, if no market value is ascertainable, at the fair value
as determined in good faith by our Board of Directors. Decreases
in the market values or fair values of our investments will be
recorded as unrealized depreciation. Any unrealized losses in
our loan portfolio could be an indication of a portfolio
companys inability to meet its repayment obligations
22
to us with respect to the affected loans. This could result in
realized losses in the future and ultimately in reductions of
our income available for distribution in future periods.
Prepayments
of our debt investments by our portfolio companies could
adversely impact our results of operations and reduce our return
on equity.
We are subject to the risk that the investments we make in our
portfolio companies may be repaid prior to maturity. When this
occurs, we will generally reinvest these proceeds in temporary
investments, pending their future investment in new portfolio
companies. These temporary investments will typically have
substantially lower yields than the debt being prepaid and we
could experience significant delays in reinvesting these
amounts. Any future investment in a new portfolio company may
also be at lower yields than the debt that was repaid. As a
result, our results of operations could be materially adversely
affected if one or more of our portfolio companies elect to
prepay amounts owed to us. Additionally, prepayments could
negatively impact our return on equity, which could result in a
decline in the market price of our common stock.
Changes
in interest rates may affect our cost of capital and net
investment income.
Some of our debt investments will bear interest at variable
rates and the interest income from these investments could be
negatively affected by decreases in market interest rates. In
addition, an increase in interest rates would make it more
expensive to use debt to finance our investments. As a result, a
significant increase in market interest rates could increase our
cost of capital, which would reduce our net investment income.
Also, an increase in interest rates available to investors could
make an investment in our common stock less attractive if we are
not able to increase our dividend rate, a situation which could
reduce the value of our common stock. Conversely, a decrease in
interest rates may have an adverse impact on our returns by
requiring us to seek lower yields on our debt investments and by
increasing the risk that our portfolio companies will prepay our
debt investments, resulting in the need to redeploy capital at
potentially lower rates. A decrease in market interest rates may
also adversely impact our returns on idle funds, which would
reduce our net investment income.
We may
not realize gains from our equity investments.
Certain investments that we have made in the past and may make
in the future include warrants or other equity securities.
Investments in equity securities involve a number of significant
risks, including the risk of further dilution as a result of
additional issuances, inability to access additional capital and
failure to pay current distributions. Investments in preferred
securities involve special risks, such as the risk of deferred
distributions, credit risk, illiquidity and limited voting
rights. In addition, we may from time to time make non-control,
equity investments in portfolio companies. Our goal is
ultimately to realize gains upon our disposition of such equity
interests. However, the equity interests we receive may not
appreciate in value and, in fact, may decline in value.
Accordingly, we may not be able to realize gains from our equity
interests, and any gains that we do realize on the disposition
of any equity interests may not be sufficient to offset any
other losses we experience. We also may be unable to realize any
value if a portfolio company does not have a liquidity event,
such as a sale of the business, recapitalization or public
offering, which would allow us to sell the underlying equity
interests. We often seek puts or similar rights to give us the
right to sell our equity securities back to the portfolio
company issuer. We may be unable to exercise these puts rights
for the consideration provided in our investment documents if
the issuer is in financial distress.
Risks
Relating to an Offering of Our Common Stock
Shares
of closed-end investment companies, including BDCs, may trade at
a discount to their net asset value.
Shares of closed-end investment companies, including BDCs, may
trade at a discount from net asset value. This characteristic of
closed-end investment companies and BDCs is separate and
distinct from the risk that our net asset value per share may
decline. We cannot predict whether our common stock will trade
at, above or below net asset value. In addition, if our common
stock trades below net asset value, we will
23
generally not be able to issue additional common stock at the
market price unless our stockholders approve such a sale and our
Board of Directors makes certain determinations. See
Risks Relating to Our Business and
Structure Stockholders may incur dilution if we sell
shares of our common stock in one or more offerings at prices
below the then current net asset value per share of our common
stock or issue securities to subscribe to, convert to or
purchase shares of our common stock for a discussion of
proposals approved by our stockholders that permit us to issue
shares of our common stock below net asset value.
We may
be unable to invest a significant portion of the net proceeds
from an offering on acceptable terms, which could harm our
financial condition and operating results.
Delays in investing the net proceeds raised in an offering may
cause our performance to be worse than that of other fully
invested BDCs or other lenders or investors pursuing comparable
investment strategies. We cannot assure you that we will be able
to identify any investments that meet our investment objective
or that any investment that we make will produce a positive
return. We may be unable to invest the net proceeds of any
offering on acceptable terms within the time period that we
anticipate or at all, which could harm our financial condition
and operating results.
We anticipate that, depending on market conditions and the
amount of any particular offering, it may take us a substantial
period of time to invest substantially all of the net proceeds
of any offering in securities meeting our investment objective.
During this period, we will invest the net proceeds of any
offering primarily in cash, cash equivalents,
U.S. government securities and high-quality debt
instruments, which may produce returns that are significantly
lower than the returns which we expect to achieve when our
portfolio is fully invested in securities meeting our investment
objective. As a result, any distributions that we pay during
such period may be substantially lower than the distributions
that we may be able to pay when our portfolio is fully invested
in securities meeting our investment objective. In addition,
until such time as the net proceeds of any offering are invested
in securities meeting our investment objective, the market price
for our common stock may decline. Thus, the initial return on
your investment may be lower than when, if ever, our portfolio
is fully invested in securities meeting our investment objective.
Investing
in our common stock may involve an above average degree of
risk.
The investments we make in accordance with our investment
objective may result in a higher amount of risk than alternative
investment options and a higher risk of volatility or loss of
principal. Our investments in portfolio companies involve higher
levels of risk, and therefore, an investment in our shares may
not be suitable for someone with lower risk tolerance.
The
market price of our common stock may be volatile and fluctuate
significantly.
Fluctuations in the trading prices of our shares may adversely
affect the liquidity of the trading market for our shares and,
if we seek to raise capital through future equity financings,
our ability to raise such equity capital. The market price and
liquidity of the market for our common stock may be
significantly affected by numerous factors, some of which are
beyond our control and may not be directly related to our
operating performance. These factors include:
|
|
|
|
|
significant volatility in the market price and trading volume of
securities of BDCs or other companies in our sector, which are
not necessarily related to the operating performance of these
companies;
|
|
|
|
changes in regulatory policies, accounting pronouncements or tax
guidelines, particularly with respect to RICs, BDCs or SBICs;
|
|
|
|
inability to obtain any exemptive relief that may be required by
us in the future from the SEC;
|
|
|
|
loss of our BDC or RIC status or the Funds status as an
SBIC;
|
|
|
|
changes in our earnings or variations in our operating results;
|
|
|
|
changes in the value of our portfolio of investments;
|
24
|
|
|
|
|
any shortfall in our investment income or net investment income
or any increase in losses from levels expected by investors or
securities analysts;
|
|
|
|
loss of a major funding source;
|
|
|
|
fluctuations in interest rates;
|
|
|
|
the operating performance of companies comparable to us;
|
|
|
|
departure of our key personnel;
|
|
|
|
global or national credit market changes; and
|
|
|
|
general economic trends and other external factors.
|
Provisions
of the Maryland General Corporation Law and our articles of
incorporation and bylaws could deter takeover attempts and have
an adverse impact on the price of our common
stock.
The Maryland General Corporation Law and our articles of
incorporation and bylaws contain provisions that may have the
effect of discouraging, delaying or making difficult a change in
control of our company or the removal of our incumbent
directors. The existence of these provisions, among others, may
have a negative impact on the price of our common stock and may
discourage third-party bids for ownership of our company. These
provisions may prevent any premiums being offered to you for our
common stock.
CAUTIONARY
STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Some of the statements in this prospectus and any accompanying
prospectus supplement constitute forward-looking statements
because they relate to future events or our future performance
or financial condition. The forward-looking statements contained
in this prospectus and any accompanying prospectus supplement
may include statements as to:
|
|
|
|
|
our future operating results and dividend projections;
|
|
|
|
our business prospects and the prospects of our portfolio
companies;
|
|
|
|
the impact of the investments that we expect to make;
|
|
|
|
the ability of our portfolio companies to achieve their
objectives;
|
|
|
|
our expected financings and investments;
|
|
|
|
the adequacy of our cash resources and working capital; and
|
|
|
|
the timing of cash flows, if any, from the operations of our
portfolio companies.
|
In addition, words such as anticipate,
believe, expect and intend
indicate a forward-looking statement, although not all
forward-looking statements include these words. The
forward-looking statements contained in this prospectus and any
accompanying prospectus supplement involve risks and
uncertainties. Our actual results could differ materially from
those implied or expressed in the forward-looking statements for
any reason, including the factors set forth in Risk
Factors and elsewhere in this prospectus and any
accompanying prospectus supplement. Other factors that could
cause actual results to differ materially include:
|
|
|
|
|
changes in the economy;
|
|
|
|
risks associated with possible disruption in our operations or
the economy generally due to terrorism or natural
disasters; and
|
|
|
|
future changes in laws or regulations and conditions in our
operating areas.
|
We have based the forward-looking statements included in this
prospectus and will base the forward-looking statements included
in any accompanying prospectus supplement on information
available to us on the date of this prospectus and any
accompanying prospectus supplement, as appropriate, and we
assume no
25
obligation to update any such forward-looking statements, except
as required by law. Although we undertake no obligation to
revise or update any forward-looking statements, whether as a
result of new information, future events or otherwise, you are
advised to consult any additional disclosures that we may make
directly to you or through reports that we in the future may
file with the SEC, including annual reports on
Form 10-K,
quarterly reports on
Form 10-Q
and current reports on
Form 8-K.
FORMATION
TRANSACTIONS
MSCC was formed on March 9, 2007, for the purpose of
(i) acquiring 100% of the equity interests of the Fund and
its general partner, the General Partner, (ii) acquiring
100% of the equity interests of the Investment Manager,
(iii) raising capital in the IPO, and (iv) thereafter
operating as an internally managed BDC under the 1940 Act. The
Fund is licensed as an SBIC by the SBA and the Investment
Manager acts as the Funds manager and investment adviser.
The Investment Manager also acts as the manager and investment
adviser to MSC II, a privately owned, affiliated SBIC which
commenced investment operations in January 2006. MSCC did not
acquire any interest in MSC II in connection with the Formation
Transactions and currently does not hold any equity interest in
MSC II. The transactions discussed above were consummated in
October 2007 and are collectively termed the Formation
Transactions.
As part of the Formation Transactions, the Investment Manager,
which employs all of the executive officers and other employees
of MSCC, became a wholly owned subsidiary of MSCC. However, the
Investment Manager is accounted for as a portfolio investment of
Main Street, since the Investment Manager is not a registered
investment company and since it conducts a significant portion
of its investment management activities for MSC II, a separate
SBIC fund in which MSCC does not have an equity interest. The
Investment Manager receives recurring investment management fees
from MSC II pursuant to a separate investment advisory
agreement, paid quarterly, which currently total
$3.3 million per year. The portfolio investment in the
Investment Manager is accounted for using fair value accounting,
with the fair value determined by MSCC and approved, in good
faith, by MSCCs Board of Directors. MSCCs valuation
of the Investment Manager is based upon the discounted net cash
flows from third party recurring investment managers fees. The
net cash flows utilized in the valuation of the Investment
Manager exclude any revenues and expenses from all related
parties (including MSCC) but include the management fees from
MSC II and an estimated allocation of costs related to providing
services to MSC II. For more information on the Investment
Manager, see Note D Wholly Owned
Investment Manager to our consolidated financial
statements.
In connection with the Formation Transactions, MSCC entered into
a support services agreement with the Investment Manager. The
agreement requires the Investment Manager to manage the
day-to-day
operational and investment activities of Main Street. The
Investment Manager generally incurs all normal operating and
administrative expenses, except those specifically required to
be borne by MSCC, which principally include costs that are
specific to MSCCs status as a publicly traded entity. The
expenses paid by the Investment Manager include the cost of
salaries and related benefits, rent, equipment and other
administrative costs required for Main Streets
day-to-day
operations.
The Investment Manager is reimbursed for its expenses associated
with providing operational and investment management services to
MSCC and its subsidiaries. Each quarter, as part of the support
services agreement, MSCC makes payments to cover all expenses
incurred by the Investment Manager, less amounts the Investment
Manager receives from MSC II pursuant to a separate investment
advisory services agreement. Based on this separate investment
advisory services agreement, MSC II paid the Investment Manager
approximately $3.3 million in 2008 for these services.
The IPO involved the public offering and sale of
4,300,000 shares of our common stock, including shares sold
upon the underwriters exercise of the over-allotment
option, at a price to the public of $15.00 per share of our
common stock, resulting in net proceeds to us of approximately
$60.2 million, after deducting underwriters
commissions totaling approximately $4.3 million. As a
result of the IPO and the Formation Transactions described
above, we are a closed-end, non-diversified management
investment company that has elected to be treated as a BDC under
the 1940 Act. Because the Investment Manager, which employs all
of the executive officers and other employees of MSCC, is wholly
owned by us, we do not pay any external
26
investment advisory fees, but instead we incur the net operating
costs associated with employing investment and portfolio
management professionals through the Investment Manager.
Immediately following the completion of the Formation
Transactions, MSEI was created as a wholly-owned consolidated
subsidiary of MSCC to hold certain of our portfolio investments.
MSEI has elected for tax purposes to be treated as a taxable
entity and is taxed at normal corporate tax rates based on its
taxable income. The taxable income of MSEI may differ from its
book income due to deferred tax timing differences as well as
permanent differences.
We co-invested with MSC II in several existing portfolio
investments prior to the IPO, but did not co-invest with MSC II
subsequent to the IPO and prior to June 2008. On June 4,
2008, we received exemptive relief from the SEC to allow us to
resume co-investing with MSC II in accordance with the terms of
such exemptive relief.
USE OF
PROCEEDS
We intend to use all of the net proceeds from selling our common
stock to make investments in lower middle-market companies in
accordance with our investment objective and strategies
described in this prospectus or any prospectus supplement, pay
our operating expenses and dividends to our stockholders and for
general corporate purposes. Pending such use, we will invest the
net proceeds of any offering primarily in short-term securities
consistent with our BDC election and our election to be taxed as
a RIC. See Regulation Regulation as a Business
Development Company Idle Funds Investments.
Our ability to achieve our investment objective may be limited
to the extent that the net proceeds from an offering, pending
full investment, are held in interest-bearing deposits or other
short-term instruments. The supplement to this prospectus
relating to an offering will more fully identify the use of
proceeds from such an offering.
PRICE
RANGE OF COMMON STOCK AND DISTRIBUTIONS
Our common stock is traded on the Nasdaq Global Select Market
under the symbol MAIN. The following table sets
forth, for each fiscal quarter since our initial public
offering, the range of high and low sales prices of our common
stock as reported on the Nasdaq Global Select Market, the sales
price as a percentage of our net asset value (NAV) and the
dividends declared by us for each fiscal quarter. The stock
quotations are inter-dealer quotations and do not include
mark-ups,
mark-downs or commissions and as such do not necessarily
represent actual transactions.
During the fourth quarter of 2008, we began paying monthly
instead of quarterly dividends to our stockholders, determined
by our Board of Directors on a quarterly basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
Percentage
|
|
|
Cash
|
|
|
|
|
|
|
Price Range
|
|
|
of High Sales
|
|
|
of Low Sales Price
|
|
|
Dividend
|
|
|
|
NAV(1)
|
|
|
High
|
|
|
Low
|
|
|
Price to NAV(2)
|
|
|
to NAV(2)
|
|
|
per Share(3)
|
|
|
Year ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 5, 2007 to December 31, 2007(4)
|
|
$
|
12.85
|
|
|
$
|
15.02
|
|
|
$
|
13.60
|
|
|
|
117
|
%
|
|
|
106
|
%
|
|
$
|
0.33
|
|
Year ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
12.87
|
|
|
$
|
14.10
|
|
|
$
|
12.75
|
|
|
|
110
|
%
|
|
|
99
|
%
|
|
$
|
0.34
|
|
Second Quarter
|
|
$
|
13.02
|
|
|
$
|
14.40
|
|
|
$
|
10.90
|
|
|
|
111
|
%
|
|
|
84
|
%
|
|
$
|
0.35
|
|
Third Quarter
|
|
$
|
12.49
|
|
|
$
|
14.40
|
|
|
$
|
11.38
|
|
|
|
115
|
%
|
|
|
91
|
%
|
|
$
|
0.36
|
|
Fourth Quarter
|
|
$
|
12.20
|
|
|
$
|
11.95
|
|
|
$
|
8.82
|
|
|
|
98
|
%
|
|
|
72
|
%
|
|
$
|
0.375
|
|
Year ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
*
|
|
|
$
|
10.43
|
|
|
$
|
9.07
|
|
|
|
*
|
|
|
|
*
|
|
|
$
|
0.375
|
|
Second Quarter (through April 23, 2009)
|
|
|
*
|
|
|
$
|
12.99
|
|
|
$
|
9.66
|
|
|
|
*
|
|
|
|
*
|
|
|
$
|
0.375
|
|
27
|
|
|
(1) |
|
Net asset value per share is determined as of the last day in
the relevant quarter and therefore may not reflect the net asset
value per share on the date of the high and low sales prices.
The net asset values shown are based on outstanding shares at
the end of each period. Net asset value has not yet been
determined for the first and second quarters of 2009. |
|
|
|
|
|
(2) |
|
Calculated as the respective high or low sales price divided by
net asset value. |
|
|
|
|
|
(3) |
|
Represents the dividend declared in the specified quarter. We
have adopted an opt out dividend reinvestment plan
for our common stockholders. As a result, if we declare a
dividend, then stockholders cash dividends will be
automatically reinvested in additional shares of our common
stock, unless they specifically opt out of the
dividend reinvestment plan so as to receive cash dividends. See
Dividend Reinvestment Plan. |
|
(4) |
|
Our stock began trading on the Nasdaq Global Select Market on
October 5, 2007. |
The last reported price for our common stock on April 23,
2009 was $11.70 per share. As of April 22, 2009, we had 120
stockholders of record.
Shares of BDCs may trade at a market price that is less than the
value of the net assets attributable to those shares. The
possibilities that our shares of common stock will trade at a
discount from net asset value or at premiums that are
unsustainable over the long term are separate and distinct from
the risk that our net asset value will decrease. It is not
possible to predict whether the common stock offered hereby will
trade at, above, or below net asset value. Since our IPO in
October 2007, our shares of common stock have traded at prices
both less than and exceeding our net asset value.
We have distributed quarterly, but, beginning in the fourth
quarter of 2008, we began to distribute monthly, dividends to
our stockholders.
Our dividends, if any, are determined by our Board of Directors.
MSCC has elected to be treated for federal income tax purposes
as a RIC under Subchapter M of the Code. As long as we qualify
as a RIC, we will not be taxed on our investment company taxable
income or realized net capital gains, to the extent that such
taxable income or gains are distributed, or deemed to be
distributed, to stockholders on a timely basis.
To maintain RIC tax treatment, we must, among other things,
distribute at least 90.0% of our net ordinary income and
realized net short-term capital gains in excess of realized net
long-term capital losses, if any. Depending on the level of
taxable income earned in a tax year, we may choose to carry
forward taxable income in excess of current year distributions
into the next tax year and pay a 4% excise tax on such income.
Any such carryover taxable income must be distributed through a
dividend declared prior to filing the final tax return related
to the year which generated such taxable income. Please refer to
Material U.S. Federal Income Tax Considerations
for further information regarding the consequences of our
retention of net capital gains. We may, in the future, make
actual distributions to our stockholders of our net capital
gains. We can offer no assurance that we will achieve results
that will permit the payment of any cash distributions and, if
we issue senior securities, we will be prohibited from making
distributions if doing so causes us to fail to maintain the
asset coverage ratios stipulated by the 1940 Act or if
distributions are limited by the terms of any of our borrowings.
See Regulation and Material U.S. Federal
Income Tax Considerations.
28
PURCHASES
OF EQUITY SECURITIES
On November 13, 2008, we announced that our Board of
Directors authorized our officers, in their discretion and
subject to compliance with the 1940 Act and other applicable
laws, to purchase on the open market or in privately negotiated
transactions, an amount up to $5 million of the outstanding
shares of our common stock at prices per share not to exceed our
last reported net asset value per share. The share repurchase
program is authorized to be in effect through the earlier of
December 31, 2009 or such time as the approved
$5 million repurchase amount has been fully utilized. We
can not assure you the extent that we will conduct open market
purchases, and to the extent we do conduct open market
purchases, we may terminate them at any time. As of
December 31, 2008, we had purchased 34,700 shares of
our common stock for $331,006 in the open market pursuant to the
program. The following chart summarizes repurchases of our
common stock under the stock repurchase program through
December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum Number
|
|
|
|
|
|
|
|
|
|
|
|
|
(or Approximate
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
Dollar Value) of
|
|
|
|
|
|
|
|
|
|
Shares Purchased
|
|
|
Shares that May
|
|
|
|
|
|
|
|
|
|
as Part of Publicly
|
|
|
Yet be Purchased
|
|
|
|
Total Number of
|
|
|
Average Price Paid
|
|
|
Announced Plans
|
|
|
Under the Plans or
|
|
Period
|
|
Shares Purchased
|
|
|
per Share
|
|
|
or Programs
|
|
|
Programs
|
|
|
October 1, 2008 through October 31, 2008
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
November 1, 2008 through November 30, 2008
|
|
|
8,500
|
|
|
$
|
9.29
|
|
|
|
8,500
|
|
|
|
|
|
December 1, 2008 through December 31, 2008
|
|
|
26,200
|
|
|
$
|
9.62
|
|
|
|
26,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
34,700
|
|
|
$
|
9.54
|
|
|
|
34,700
|
|
|
$
|
4,668,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
SELECTED
FINANCIAL DATA
The selected financial and other data below reflects the
combined operations of the Fund and the General Partner for the
years ended December 31, 2004, 2005 and 2006 and the
consolidated operations of Main Street and its subsidiaries for
the years ended December 31, 2007 and 2008. The selected
financial data at December 31, 2005, 2006, 2007 and 2008
and for the years ended December 31, 2004, 2005, 2006, 2007
and 2008, have been derived from combined/consolidated financial
statements that have been audited by Grant Thornton LLP, an
independent registered public accounting firm. The selected
financial data at December 31, 2004 has been derived from
unaudited combined financial statements. You should read this
selected financial and other data in conjunction with our
Managements Discussion and Analysis of Financial
Condition and Results of Operations, Senior
Securities and the financial statements and related notes
thereto.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Statement of operations data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest, fee and dividend income
|
|
$
|
4,452
|
|
|
$
|
7,338
|
|
|
$
|
9,013
|
|
|
$
|
11,312
|
|
|
$
|
15,967
|
|
Interest from idle funds and other
|
|
|
9
|
|
|
|
222
|
|
|
|
749
|
|
|
|
1,163
|
|
|
|
1,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment income
|
|
|
4,461
|
|
|
|
7,560
|
|
|
|
9,762
|
|
|
|
12,475
|
|
|
|
17,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
(869
|
)
|
|
|
(2,064
|
)
|
|
|
(2,717
|
)
|
|
|
(3,246
|
)
|
|
|
(3,778
|
)
|
General and administrative
|
|
|
(184
|
)
|
|
|
(197
|
)
|
|
|
(198
|
)
|
|
|
(512
|
)
|
|
|
(1,684
|
)
|
Expenses reimbursed to Investment Manager
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,007
|
)
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(511
|
)
|
Management fees to affiliate
|
|
|
(1,916
|
)
|
|
|
(1,929
|
)
|
|
|
(1,942
|
)
|
|
|
(1,500
|
)
|
|
|
|
|
Professional costs related to initial public offering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(695
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
(2,969
|
)
|
|
|
(4,190
|
)
|
|
|
(4,857
|
)
|
|
|
(5,953
|
)
|
|
|
(6,980
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
1,492
|
|
|
|
3,370
|
|
|
|
4,905
|
|
|
|
6,522
|
|
|
|
10,315
|
|
Total net realized gain from investments
|
|
|
1,171
|
|
|
|
1,488
|
|
|
|
2,430
|
|
|
|
4,692
|
|
|
|
1,398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized income
|
|
|
2,663
|
|
|
|
4,858
|
|
|
|
7,335
|
|
|
|
11,214
|
|
|
|
11,713
|
|
Total net change in unrealized appreciation (depreciation) from
investments
|
|
|
1,764
|
|
|
|
3,032
|
|
|
|
8,488
|
|
|
|
(5,406
|
)
|
|
|
(3,961
|
)
|
Income tax benefit (provision)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,263
|
)
|
|
|
3,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting from operations
|
|
$
|
4,427
|
|
|
$
|
7,890
|
|
|
$
|
15,823
|
|
|
$
|
2,545
|
|
|
$
|
10,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income per share basic and diluted
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
0.76
|
|
|
$
|
1.15
|
|
Net realized income per share basic and diluted
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
1.31
|
|
|
$
|
1.31
|
|
Net increase in net assets resulting from operations per
share basic and diluted
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
0.30
|
|
|
$
|
1.22
|
|
Weighted average shares outstanding basic
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
8,587,701
|
|
|
|
8,967,383
|
|
Weighted average shares outstanding diluted
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
8,587,701
|
|
|
|
8,971,064
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
Balance sheet data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total portfolio investments at fair value
|
|
$
|
37,972
|
|
|
$
|
51,192
|
|
|
$
|
73,711
|
|
|
$
|
105,650
|
|
|
$
|
127,007
|
|
Idle funds investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,063
|
|
|
|
4,390
|
|
Cash and cash equivalents
|
|
|
796
|
|
|
|
26,261
|
|
|
|
13,769
|
|
|
|
41,889
|
|
|
|
35,375
|
|
Deferred tax asset
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,121
|
|
Other assets
|
|
|
262
|
|
|
|
439
|
|
|
|
630
|
|
|
|
1,576
|
|
|
|
1,101
|
|
Deferred financing costs, net of accumulated amortization
|
|
|
984
|
|
|
|
1,442
|
|
|
|
1,333
|
|
|
|
1,670
|
|
|
|
1,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
40,014
|
|
|
$
|
79,334
|
|
|
$
|
89,443
|
|
|
$
|
174,848
|
|
|
$
|
170,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and net assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBIC debentures
|
|
$
|
22,000
|
|
|
$
|
45,100
|
|
|
$
|
45,100
|
|
|
$
|
55,000
|
|
|
$
|
55,000
|
|
Deferred tax liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,026
|
|
|
|
|
|
Interest payable
|
|
|
354
|
|
|
|
771
|
|
|
|
855
|
|
|
|
1,063
|
|
|
|
1,108
|
|
Accounts payable and other liabilities
|
|
|
422
|
|
|
|
194
|
|
|
|
216
|
|
|
|
610
|
|
|
|
2,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
22,776
|
|
|
|
46,065
|
|
|
|
46,171
|
|
|
|
59,699
|
|
|
|
58,273
|
|
Total net assets
|
|
|
17,238
|
|
|
|
33,269
|
|
|
|
43,272
|
|
|
|
115,149
|
|
|
|
112,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and net assets
|
|
$
|
40,014
|
|
|
$
|
79,334
|
|
|
$
|
89,443
|
|
|
$
|
174,848
|
|
|
$
|
170,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average effective yield on debt investments(1)
|
|
|
15.3
|
%
|
|
|
15.3
|
%
|
|
|
15.0
|
%
|
|
|
14.3
|
%
|
|
|
14.0
|
%
|
Number of portfolio companies(3)
|
|
|
14
|
|
|
|
19
|
|
|
|
24
|
|
|
|
27
|
|
|
|
31
|
|
Expense ratios (as percentage of average net assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses(2)
|
|
|
13.7
|
%
|
|
|
9.0
|
%
|
|
|
5.5
|
%
|
|
|
4.8
|
%
|
|
|
2.8
|
%
|
Interest expense
|
|
|
5.7
|
%
|
|
|
8.8
|
%
|
|
|
7.0
|
%
|
|
|
5.7
|
%
|
|
|
3.3
|
%
|
|
|
|
(1) |
|
Weighted-average effective yield is calculated based on our debt
investments at the end of each period and includes amortization
of deferred debt origination fees and accretion of original
issue discount, but excludes debt investments with non-accrual
status. |
|
|
|
|
|
(2) |
|
The ratio for the year ended December 31, 2007 reflects the
impact of professional costs related to the IPO. These costs
were 25.7% of operating expenses for the year. |
|
|
|
|
|
(3) |
|
Excludes the investment in affiliated Investment Manager, as
referenced in Formation Transactions and in the
notes to the financial statements elsewhere herein. |
31
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with
our financial statements and the notes thereto included
elsewhere in this prospectus.
Statements we make in the following discussion which express
a belief, expectation or intention, as well as those that are
not historical fact, are forward-looking statements that are
subject to risks, uncertainties and assumptions. Our actual
results, performance or achievements, or industry results, could
differ materially from those we express in the following
discussion as a result of a variety of factors, including the
risks and uncertainties we have referred to under the headings
Cautionary Statement Concerning Forward-Looking
Statements and Risk Factors in this
prospectus.
ORGANIZATION
Main Street Capital Corporation (MSCC) was formed on
March 9, 2007 for the purpose of (i) acquiring 100% of
the equity interests of Main Street Mezzanine Fund, LP (the
Fund) and its general partner, Main Street Mezzanine
Management, LLC (the General Partner),
(ii) acquiring 100% of the equity interests of Main Street
Capital Partners, LLC (the Investment Manager),
(iii) raising capital in an initial public offering, which
was completed in October 2007 (the IPO), and
(iv) thereafter operating as an internally managed business
development company (BDC) under the Investment
Company Act of 1940, as amended (the 1940 Act). The
transactions discussed above were consummated in October 2007
and are collectively termed the Formation
Transactions. Immediately following the Formation
Transactions, Main Street Equity Interests, Inc.
(MSEI) was formed as a wholly owned consolidated
subsidiary of MSCC. MSEI has elected for tax purposes to be
treated as a taxable entity and is taxed at normal corporate tax
rates based on its taxable income. Unless otherwise noted or the
context otherwise indicates, the terms we,
us, our and Main Street
refer to the Fund and the General Partner prior to the IPO and
to MSCC and its subsidiaries, including the Fund and the General
Partner, subsequent to the IPO.
OVERVIEW
We are a principal investment firm focused on providing
customized debt and equity financing to lower middle-market
companies, which we generally define as companies with annual
revenues between $10 and $100 million that operate in
diverse industries. We invest primarily in secured debt
instruments, equity investments, warrants and other securities
of lower middle-market companies based in the United States. Our
principal investment objective is to maximize our
portfolios total return by generating current income from
our debt investments and capital appreciation from our equity
and equity-related investments, including warrants, convertible
securities and other rights to acquire equity securities in a
portfolio company. Our investments generally range in size from
$2 million to $15 million.
Our investments are made through both MSCC and the Fund. Since
the IPO, MSCC and the Fund have co-invested in substantially
every investment we have made. MSCC and the Fund share the same
investment strategies and criteria in the lower middle-market,
although they are subject to different regulatory regimes. See
Regulation. An investors return in MSCC will
depend, in part, on the Funds investment returns as the
Fund is a wholly owned subsidiary of MSCC.
We seek to fill the current financing gap for lower
middle-market businesses, which, historically, have had limited
access to financing from commercial banks and other traditional
sources. Given the current credit environment, we believe the
limited access to financing for lower middle market companies is
even more pronounced. The underserved nature of the lower middle
market creates the opportunity for us to meet the financing
needs of lower middle-market companies while also negotiating
favorable transaction terms and equity participations. Our
ability to invest across a companys capital structure,
from senior secured loans to equity securities, allows us to
offer portfolio companies a comprehensive suite of financing
solutions, or one stop financing. Providing
customized, one stop financing solutions has become
even more relevant to our portfolio companies in the current
credit environment. We generally seek to partner directly with
32
entrepreneurs, management teams and business owners in making
our investments. Main Street believes that its core investment
strategy has a lower correlation to the broader debt and equity
markets.
Due to the uncertainties in the current economic environment and
our desire to maintain adequate liquidity, we intend to be very
selective in our near term portfolio growth. However, we
anticipate that our net investment income will continue to grow
as we deploy our existing lower yield cash and cash equivalents
into higher yielding portfolio investments. During 2008, we paid
approximately $1.425 per share in dividends. In September 2008,
we declared monthly dividends for the fourth quarter of 2008
totaling $0.375 per share representing a 13.6% increase from the
dividends paid in the fourth quarter of 2007. In December 2008,
we declared monthly dividends for the first quarter of 2009
totaling $0.375 per share representing a 10.3% increase from the
dividends paid in the first quarter of 2008. For tax purposes,
the monthly dividend paid in January 2009 was applied against
the 2008 taxable income distribution requirements since it was
declared and accrued prior to December 31, 2008. Excluding
the impact for the tax treatment of the January 2009 dividend,
we estimate that we generated undistributed taxable income (or
spillover income) of approximately $4 million,
or $0.44 per share, during 2008 that will be carried forward
toward distributions paid in 2009. For the 2009 calendar year,
we estimate that we will pay dividends in the range of $1.50 to
$1.65 per share representing an increase of 5.3% to 15.8% over
the total dividends per share paid during calendar year 2008.
The estimated range for total 2009 dividends is based upon
projections of 2009 taxable income, anticipated 2009 portfolio
activity, and the $4 million of 2008 spillover income which
will be utilized to pay dividends during 2009. We will continue
to pay dividends on a monthly basis during 2009 and will
continue to provide quarterly updates related to our 2009
dividend guidance.
At December 31, 2008, we had $39.8 million in cash and
cash equivalents plus idle funds investments. During October
2008, we closed a $30 million multi-year investment line of
credit. Due to our existing and available cash and other
resources, we expect to have sufficient cash resources to
support our investment and operational activities throughout all
of 2009 and well into 2010. However, this projection will be
impacted by, among other things, the pace of new and follow on
investments, investment redemptions, the level of cash flow from
operations and cash flow from realized gains, and the level of
dividends paid in cash.
The recently enacted American Recovery and Reinvestment Act of
2009 (the 2009 Stimulus Bill) contains several
provisions applicable to Small Business Investment Company
(SBIC) funds, including the Fund, our wholly owned
subsidiary. One of the key SBIC-related provisions included in
the 2009 Stimulus Bill increases the maximum amount of combined
SBIC leverage (or SBIC leverage cap) to $225 million for
affiliated SBIC funds. The prior maximum amount of SBIC leverage
available to affiliated SBIC funds was approximately
$137 million, as adjusted annually based upon changes in
the Consumer Price Index. Due to the increase in the maximum
amount of SBIC leverage available, we will now have access to
incremental SBIC leverage to support our future investment
activities. Since the increase in the SBIC leverage cap applies
to affiliated SBIC funds, we will allocate such increased
borrowing capacity between our wholly owned SBIC subsidiary and
Main Street Capital II, LP (MSC II), an
independently owned SBIC that is managed by Main Street and
therefore deemed to be affiliated for SBIC regulatory purposes.
It is currently estimated that at least $55 million to
$60 million of additional SBIC leverage is now accessible
by Main Street for future investment activities, subject to the
required capitalization of our wholly owned SBIC subsidiary.
In our view, the SBIC leverage, including the increased
capacity, remains a strategic advantage due to its long-term,
flexible structure and a very low fixed cost. The SBIC leverage
also provides proper matching of duration and cost compared with
our portfolio debt investments. The weighted average duration of
our portfolio debt investments is 3.5 years compared to a
weighted average duration of over 6 years for our SBIC
leverage. This duration on our SBIC leverage does not consider
the opportunity to revolve or refinance our existing SBIC
leverage into new
10-year
tranches upon contractual maturity. Approximately 85% of
portfolio debt investments bear interest at fixed rates which is
also appropriately matched by the long-term, low cost fixed
rates available through our SBIC leverage. In addition, we
believe the embedded value of our SBIC leverage would be
significant if we had adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities (SFAS 159) relating to
accounting for debt obligations at their fair value.
33
CRITICAL
ACCOUNTING POLICIES
Basis
of Presentation
The financial statements are prepared in accordance with
accounting principles generally accepted in the United States of
America (U.S. GAAP). For the years ended
December 31, 2008 and 2007, the consolidated financial
statements of Main Street include the accounts of MSCC, the
Fund, MSEI and the General Partner. The Investment Manager is
accounted for as a portfolio investment. The Formation
Transactions involved an exchange of equity interests between
companies under common control. In accordance with the guidance
on exchanges of equity interests between entities under common
control contained in SFAS No. 141, Business
Combinations (SFAS 141), Main Streets
results of operations and cash flows for the year ended
December 31, 2007 are presented as if the Formation
Transactions had occurred as of January 1, 2007. Main
Streets results of operations for the years ended
December 31, 2008 and 2007, cash flows for the years ended
December 31, 2008 and 2007 and financial positions as of
December 31, 2008 and 2007 are presented on a consolidated
basis. In addition, the results of Main Streets operations
and its cash flows for the year ended December 31, 2006
have been presented on a combined basis in order to provide
comparative information with respect to prior periods. The
effects of all intercompany transactions between Main Street and
its subsidiaries have been eliminated in consolidation. As a
result of adopting the provisions of SFAS No. 157,
Fair Value Measurements (SFAS 157), in
the first quarter of 2008, certain reclassifications have been
made to prior period balances to conform with the current
financial statement presentation.
Under the investment company rules and regulations pursuant to
Article 6 of
Regulation S-X
and the Audit and Accounting Guide for Investment Companies
issued by the American Institute of Certified Public Accountants
(the AICPA Guide), we are precluded from
consolidating portfolio company investments, including those in
which we have a controlling interest, unless the portfolio
company is another investment company. An exception to this
general principle in the AICPA Guide occurs if we own a
controlled operating company that provides all or substantially
all of its services directly to us, or to an investment company
of ours. None of the investments made by us qualify for this
exception. Therefore, our portfolio investments are carried on
the balance sheet at fair value, as discussed further in
Note B to our consolidated financial statements, with any
adjustments to fair value recognized as Net Change in
Unrealized Appreciation (Depreciation) from Investments on
our Statement of Operations until the investment is disposed of,
resulting in any gain or loss on exit being recognized as a
Net Realized Gain (Loss) from Investments.
Portfolio
Investment Valuation
The most significant estimate inherent in the preparation of our
financial statements is the valuation of our portfolio
investments and the related amounts of unrealized appreciation
and depreciation. As of December 31, 2008 and
December 31, 2007, approximately 74% and 60%, respectively,
of our total assets represented investments in portfolio
companies valued at fair value (including the investment in the
Investment Manager). We are required to report our investments
at fair value. We adopted the provisions of SFAS 157 in the
first quarter of 2008. SFAS 157 defines fair value,
establishes a framework for measuring fair value, establishes a
fair value hierarchy based on the quality of inputs used to
measure fair value, and enhances disclosure requirements for
fair value measurements. With the adoption of this statement, we
incorporated the income approach to estimate the fair value of
our debt investments principally using a
yield-to-maturity
model, resulting in the recognition of $0.7 million in
unrealized appreciation from ten debt investments upon adoption.
Our business plan calls for us to invest primarily in illiquid
securities issued by private companies
and/or
thinly traded public companies. These investments may be subject
to restrictions on resale and will generally have no established
trading market. As a result, we determine in good faith the fair
value of our portfolio investments pursuant to a valuation
policy in accordance with SFAS 157 and a valuation process
approved by our Board of Directors and in accordance with the
1940 Act. We review external events, including private mergers,
sales and acquisitions involving comparable companies, and
include these events in the valuation process. Our valuation
policy is intended to provide a consistent basis for determining
the fair value of the portfolio.
34
For valuation purposes, control investments are composed of
equity and debt securities for which we have a controlling
interest in the portfolio company or have the ability to
nominate a majority of the portfolio companys board of
directors. Market quotations are generally not readily available
for our control investments. As a result, we determine the fair
value of these investments using a combination of market and
income approaches. Under the market approach, we will typically
use the enterprise value methodology to determine the fair value
of these investments. The enterprise value is the fair value at
which an enterprise could be sold in a transaction between two
willing parties, other than through a forced or liquidation
sale. Typically, private companies are bought and sold based on
multiples of earnings before interest, taxes, depreciation and
amortization, or EBITDA, cash flows, net income, revenues, or in
limited cases, book value. There is no single methodology for
estimating enterprise value. For any one portfolio company,
enterprise value is generally described as a range of values
from which a single estimate of enterprise value is derived. In
estimating the enterprise value of a portfolio company, we
analyze various factors, including the portfolio companys
historical and projected financial results. We allocate the
enterprise value to investments in order of the legal priority
of the investments. We will also use the income approach to
determine the fair value of these securities, based on
projections of the discounted future free cash flows that the
portfolio company or the debt security will likely generate. The
valuation approaches for our control investments estimate the
value of the investment if we were to sell, or exit, the
investment, assuming the highest and best use of the investment
by market participants. In addition, these valuation approaches
consider the value associated with our ability to control the
capital structure of the portfolio company, as well as the
timing of a potential exit.
For valuation purposes, non-control investments are composed of
debt and equity securities for which we do not have a
controlling interest in the portfolio company, or the ability to
nominate a majority of the portfolio companys board of
directors. Market quotations for our non-control investments are
not readily available. For our non-control investments, we use
the market approach to value our equity investments and the
income approach to value our debt instruments. For non-control
debt investments, we determine the fair value primarily using a
yield approach that analyzes the discounted cash flows of
interest and principal for the debt security, as set forth in
the associated loan agreements, as well as the financial
position and credit risk of each of these portfolio investments.
Our estimate of the expected repayment date of a debt security
is generally the legal maturity date of the instrument, as we
generally intend to hold our loans to maturity. The yield
analysis considers changes in leverage levels, credit quality,
portfolio company performance and other factors. We will use the
value determined by the yield analysis as the fair value for
that security; however, because of our general intent to hold
our loans to maturity, the fair value will not exceed the face
amount of the debt security. A change in the assumptions that we
use to estimate the fair value of our debt securities using the
yield analysis could have a material impact on the determination
of fair value. If there is deterioration in credit quality or a
debt security is in workout status, we may consider other
factors in determining the fair value of a debt security,
including the value attributable to the debt security from the
enterprise value of the portfolio company or the proceeds that
would be received in a liquidation analysis.
Due to the inherent uncertainty in the valuation process, our
estimate of fair value may differ materially from the values
that would have been used had a ready market for the securities
existed. In addition, changes in the market environment,
portfolio company performance and other events that may occur
over the lives of the investments may cause the gains or losses
ultimately realized on these investments to be different than
the valuations currently assigned. We determine the fair value
of each individual investment and record changes in fair value
as unrealized appreciation or depreciation.
Revenue
Recognition
Interest
and Dividend Income
We record interest and dividend income on the accrual basis to
the extent amounts are expected to be collected. Dividend income
is recorded as dividends are declared or at the point an
obligation exists for the portfolio company to make a
distribution. In accordance with our valuation policy, we
evaluate accrued interest and dividend income periodically for
collectibility. When a loan or debt security becomes
90 days or more past due, and if we otherwise do not expect
the debtor to be able to service all of its debt or other
obligations, we will generally place the loan or debt security
on non-accrual status and cease recognizing interest income
35
on that loan or debt security until the borrower has
demonstrated the ability and intent to pay contractual amounts
due. If a loan or debt securitys status significantly
improves regarding ability to service the debt or other
obligations, or if a loan or debt security is fully impaired or
written off, we will remove it from non-accrual status.
Fee
Income
We may periodically provide services, including structuring and
advisory services, to our portfolio companies. For services that
are separately identifiable and evidence exists to substantiate
fair value, income is recognized as earned, which is generally
when the investment or other applicable transaction closes. Fees
received in connection with debt financing transactions for
services that do not meet these criteria are treated as debt
origination fees, net of direct loan origination costs, and are
amortized, based on the effective interest method, as additional
interest income over the life of the related debt investment.
Payment-in-Kind
(PIK) Interest
While not significant to our total debt investment portfolio, we
currently hold several loans in our portfolio that contain PIK
interest provisions. The PIK interest, computed at the
contractual rate specified in each loan agreement, is added to
the principal balance of the loan and recorded as interest
income. To maintain regulated investment company
(RIC) tax treatment (as discussed below), this
non-cash source of income will need to be paid out to
stockholders in the form of distributions, even though we may
not have collected the cash. We will stop accruing PIK interest
and write off any accrued and uncollected interest when it is
determined that PIK interest is no longer collectible.
Share-Based
Compensation
We account for our share-based compensation plan using the fair
value method, as prescribed by SFAS No. 123R,
Share-Based Payment. Accordingly, for restricted stock
awards, we measured the grant date fair value based upon the
market price of our common stock on the date of the grant and
will amortize this fair value to share-based compensation
expense over the requisite service period or vesting term.
Income
Taxes
MSCC has elected and intends to qualify for the tax treatment
applicable to a RIC under Subchapter M of the Internal Revenue
Code of 1986, as amended (the Code), and, among
other things, intends to make the required distributions to our
stockholders as specified therein. As a RIC, we generally will
not pay corporate-level federal income taxes on any net ordinary
income or capital gains that we distribute to our stockholders
as dividends. Depending on the level of taxable income earned in
a tax year, we may choose to carry forward taxable income in
excess of current year distributions into the next tax year and
pay a 4% excise tax on such income. Any such carryover taxable
income must be distributed through a dividend declared prior to
filing the final tax return related to the year which generated
such taxable income.
MSCCs wholly owned subsidiary, MSEI, is a taxable entity
which holds certain of our portfolio investments. MSEI is
consolidated with Main Street for U.S. GAAP reporting
purposes, and the portfolio investments held by MSEI are
included in our consolidated financial statements. The principal
purpose of MSEI is to permit us to hold equity investments in
portfolio companies which are pass through entities
for tax purposes in order to comply with the source
income requirements contained in the RIC tax provisions.
MSEI is not consolidated with Main Street for income tax
purposes and may generate income tax expense as a result of
MSEIs ownership of certain portfolio investments. This
income tax expense, if any, is reflected in our consolidated
statement of operations.
MSEI uses the liability method in accounting for income taxes.
Deferred tax assets and liabilities are recorded for temporary
differences between the tax basis of assets and liabilities and
their reported amounts in the financial statements, using
statutory tax rates in effect for the year in which the
temporary differences are expected to reverse. A valuation
allowance is provided against deferred tax assets when it is
more likely than not that some portion or all of the deferred
tax asset will not be realized.
36
PORTFOLIO
COMPOSITION
Portfolio investments principally consist of secured debt,
equity warrants and direct equity investments in privately held
companies. The debt investments are secured by either a first or
second lien on the assets of the portfolio company, generally
bear interest at fixed rates, and generally mature between five
and seven years from the original investment. We also receive
nominally priced equity warrants and make direct equity
investments, usually in connection with a debt investment in a
portfolio company.
The Investment Manager is a wholly owned subsidiary of MSCC.
However, the Investment Manager is accounted for as a portfolio
investment of Main Street, since it is not an investment company
and since it conducts a significant portion of its investment
management activities outside of MSCC and its subsidiaries. To
allow for more relevant disclosure of our core
investment portfolio, our investment in the Investment Manager
has been excluded from the tables and amounts set forth below.
Summaries of the composition of our core investment portfolio at
cost and fair value as a percentage of total portfolio
investments are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
Cost:
|
|
2008
|
|
|
2007
|
|
|
First lien debt
|
|
|
76.2
|
%
|
|
|
81.5
|
%
|
Equity
|
|
|
11.0
|
%
|
|
|
10.7
|
%
|
Second lien debt
|
|
|
7.4
|
%
|
|
|
6.1
|
%
|
Equity warrants
|
|
|
5.4
|
%
|
|
|
1.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
Fair Value:
|
|
2008
|
|
|
2007
|
|
|
First lien debt
|
|
|
67.0
|
%
|
|
|
70.1
|
%
|
Equity
|
|
|
15.7
|
%
|
|
|
18.6
|
%
|
Equity warrants
|
|
|
10.2
|
%
|
|
|
8.0
|
%
|
Second lien debt
|
|
|
7.1
|
%
|
|
|
3.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
The following table shows the core investment portfolio
composition by geographic region of the United States at cost
and fair value as a percentage of total portfolio investments.
The geographic composition is determined by the location of the
corporate headquarters of the portfolio company:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
Cost:
|
|
2008
|
|
|
2007
|
|
|
Southwest
|
|
|
50.2
|
%
|
|
|
31.9
|
%
|
West
|
|
|
36.3
|
%
|
|
|
37.1
|
%
|
Southeast
|
|
|
5.1
|
%
|
|
|
11.4
|
%
|
Midwest
|
|
|
4.7
|
%
|
|
|
5.8
|
%
|
Northeast
|
|
|
3.7
|
%
|
|
|
13.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
Fair Value:
|
|
2008
|
|
|
2007
|
|
|
Southwest
|
|
|
56.0
|
%
|
|
|
41.2
|
%
|
West
|
|
|
31.1
|
%
|
|
|
32.9
|
%
|
Midwest
|
|
|
5.1
|
%
|
|
|
6.5
|
%
|
Southeast
|
|
|
4.1
|
%
|
|
|
10.3
|
%
|
Northeast
|
|
|
3.7
|
%
|
|
|
9.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
37
Main Streets portfolio investments are generally in lower
middle-market companies conducting business in a variety of
industries. Set forth below are tables showing the composition
of Main Streets core investment portfolio by industry at
cost and fair value as of December 31, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
Cost:
|
|
2008
|
|
|
2007
|
|
|
Industrial equipment
|
|
|
12.0
|
%
|
|
|
6.6
|
%
|
Precast concrete manufacturing
|
|
|
11.3
|
%
|
|
|
|
|
Custom wood products
|
|
|
9.3
|
%
|
|
|
8.4
|
%
|
Agricultural services
|
|
|
8.3
|
%
|
|
|
11.6
|
%
|
Electronics manufacturing
|
|
|
7.6
|
%
|
|
|
9.5
|
%
|
Transportation/Logistics
|
|
|
6.6
|
%
|
|
|
6.7
|
%
|
Retail
|
|
|
6.5
|
%
|
|
|
3.3
|
%
|
Restaurant
|
|
|
6.1
|
%
|
|
|
3.4
|
%
|
Health care products
|
|
|
5.8
|
%
|
|
|
4.2
|
%
|
Mining and minerals
|
|
|
4.8
|
%
|
|
|
9.1
|
%
|
Manufacturing
|
|
|
4.7
|
%
|
|
|
12.0
|
%
|
Health care services
|
|
|
4.2
|
%
|
|
|
5.9
|
%
|
Professional services
|
|
|
4.1
|
%
|
|
|
3.3
|
%
|
Metal fabrication
|
|
|
3.4
|
%
|
|
|
4.6
|
%
|
Equipment rental
|
|
|
2.1
|
%
|
|
|
2.6
|
%
|
Infrastructure products
|
|
|
1.7
|
%
|
|
|
2.4
|
%
|
Information services
|
|
|
0.9
|
%
|
|
|
1.2
|
%
|
Industrial services
|
|
|
0.5
|
%
|
|
|
0.4
|
%
|
Distribution
|
|
|
0.1
|
%
|
|
|
2.2
|
%
|
Consumer products
|
|
|
|
|
|
|
2.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
Fair Value:
|
|
2008
|
|
|
2007
|
|
|
Precast concrete manufacturing
|
|
|
13.7
|
%
|
|
|
|
|
Industrial equipment
|
|
|
10.2
|
%
|
|
|
6.0
|
%
|
Agricultural services
|
|
|
8.1
|
%
|
|
|
10.5
|
%
|
Electronics manufacturing
|
|
|
7.7
|
%
|
|
|
9.6
|
%
|
Retail
|
|
|
7.0
|
%
|
|
|
3.4
|
%
|
Custom wood products
|
|
|
6.8
|
%
|
|
|
7.5
|
%
|
Restaurant
|
|
|
6.7
|
%
|
|
|
4.5
|
%
|
Transportation/Logistics
|
|
|
6.5
|
%
|
|
|
6.6
|
%
|
Health care services
|
|
|
6.1
|
%
|
|
|
6.0
|
%
|
Health care products
|
|
|
5.8
|
%
|
|
|
4.1
|
%
|
Professional services
|
|
|
5.4
|
%
|
|
|
4.1
|
%
|
Manufacturing
|
|
|
5.1
|
%
|
|
|
9.5
|
%
|
Metal fabrication
|
|
|
4.3
|
%
|
|
|
4.2
|
%
|
Industrial services
|
|
|
2.8
|
%
|
|
|
2.9
|
%
|
Equipment rental
|
|
|
2.0
|
%
|
|
|
2.4
|
%
|
Information services
|
|
|
0.9
|
%
|
|
|
1.2
|
%
|
Infrastructure products
|
|
|
0.5
|
%
|
|
|
2.2
|
%
|
Distribution
|
|
|
0.4
|
%
|
|
|
2.4
|
%
|
Mining and minerals
|
|
|
|
|
|
|
12.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
38
Our core investment portfolio carries a number of risks
including, but not limited to: (1) investing in lower
middle-market companies which have a limited operating history
and financial resources; (2) holding investments that are
not publicly traded and which may be subject to legal and other
restrictions on resale; and (3) other risks common to
investing in below investment grade debt and equity investments
in private, smaller companies.
PORTFOLIO
ASSET QUALITY
We utilize an internally developed investment rating system for
our entire portfolio of investments. Investment Rating 1
represents a portfolio company that is performing in a manner
which significantly exceeds our original expectations and
projections. Investment Rating 2 represents a portfolio company
that is performing above our original expectations. Investment
Rating 3 represents a portfolio company that is generally
performing in accordance with our original expectations.
Investment Rating 4 represents a portfolio company that is
underperforming our original expectations. Investments with such
a rating require increased Main Street monitoring and scrutiny.
Investment Rating 5 represents a portfolio company that is
significantly underperforming. Investments with such a rating
require heightened levels of Main Street monitoring and scrutiny
and involve the recognition of unrealized depreciation on such
investment.
The following table shows the distribution of our investments on
our 1 to 5 investment rating scale at fair value as of
December 31, 2008 and 2007 (excluding Main Streets
investment in the Investment Manager):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
|
|
Investments at
|
|
|
Percentage of
|
|
|
Investments at
|
|
|
Percentage of
|
|
Investment Rating
|
|
Fair Value
|
|
|
Total Portfolio
|
|
|
Fair Value
|
|
|
Total Portfolio
|
|
|
|
(Dollars in thousands)
|
|
|
1
|
|
$
|
27,523
|
|
|
|
24.9
|
%
|
|
$
|
24,619
|
|
|
|
28.0
|
%
|
2
|
|
|
23,150
|
|
|
|
21.0
|
%
|
|
|
35,068
|
|
|
|
39.8
|
%
|
3
|
|
|
53,123
|
|
|
|
48.1
|
%
|
|
|
24,034
|
|
|
|
27.3
|
%
|
4
|
|
|
6,035
|
|
|
|
5.5
|
%
|
|
|
|
|
|
|
0.0
|
%
|
5
|
|
|
500
|
|
|
|
0.5
|
%
|
|
|
4,304
|
|
|
|
4.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
110,331
|
|
|
|
100.0
|
%
|
|
$
|
88,025
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based upon our investment rating system, the weighted average
rating of our portfolio as of December 31, 2008 and 2007
was approximately 2.4 and 2.2 respectively. As of
December 31, 2008 and 2007, we had one debt investment in
each period representing 0.5% and 3.1%, respectively, of total
portfolio fair value (excluding Main Streets investment in
the Investment Manager) which was on non-accrual status.
In the event that the United States economy remains in a
prolonged period of weakness, it is possible that the financial
results of small- to mid-sized companies, like those in which we
invest, could experience deterioration, which could ultimately
lead to difficulty in meeting their debt service requirements
and an increase in defaults. In addition, the end markets for
certain of our portfolio companies products and services
have experienced, and continue to experience, negative economic
trends. We are seeing somewhat reduced operating results at
several portfolio companies due to the general economic
difficulties. We expect the trend of reduced operating results
to continue throughout 2009. Consequently, we can provide no
assurance that the performance of certain of our portfolio
companies will not be negatively impacted by these economic or
other conditions which could have a negative impact on our
future results.
39
DISCUSSION
AND ANALYSIS OF RESULTS OF OPERATIONS
Comparison
of years ended December 31, 2008 and December 31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
Net Change
|
|
|
|
2008
|
|
|
2007
|
|
|
Amount
|
|
|
%
|
|
|
|
(Dollars in millions)
|
|
|
Total investment income
|
|
$
|
17.3
|
|
|
$
|
12.5
|
|
|
$
|
4.8
|
|
|
|
39
|
%
|
Total expenses
|
|
|
(7.0
|
)
|
|
|
(6.0
|
)
|
|
|
(1.0
|
)
|
|
|
17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
10.3
|
|
|
|
6.5
|
|
|
|
3.8
|
|
|
|
58
|
%
|
Total net realized gain from investments
|
|
|
1.4
|
|
|
|
4.7
|
|
|
|
(3.3
|
)
|
|
|
(70
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized income
|
|
|
11.7
|
|
|
|
11.2
|
|
|
|
0.5
|
|
|
|
4
|
%
|
Net change in unrealized appreciation (depreciation) from
investments
|
|
|
(4.0
|
)
|
|
|
(5.4
|
)
|
|
|
1.4
|
|
|
|
NA
|
|
Income tax benefit (provision)
|
|
|
3.2
|
|
|
|
(3.3
|
)
|
|
|
6.5
|
|
|
|
NA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting from operations
|
|
$
|
10.9
|
|
|
$
|
2.5
|
|
|
$
|
8.4
|
|
|
|
330
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
Net Change
|
|
|
|
2008
|
|
|
2007
|
|
|
Amount
|
|
|
%
|
|
|
Net investment income
|
|
$
|
10.3
|
|
|
$
|
6.5
|
|
|
$
|
3.8
|
|
|
|
58
|
%
|
Share-based compensation expense
|
|
|
0.5
|
|
|
|
|
|
|
|
0.5
|
|
|
|
NA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributable net investment income(a)
|
|
|
10.8
|
|
|
|
6.5
|
|
|
|
4.3
|
|
|
|
66
|
%
|
Total net realized gain (loss) from investments
|
|
|
1.4
|
|
|
|
4.7
|
|
|
|
(3.3
|
)
|
|
|
(70
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributable net realized income(a)
|
|
$
|
12.2
|
|
|
$
|
11.2
|
|
|
$
|
1.0
|
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Distributable net investment income and distributable net
realized income are net investment income and net realized
income, respectively, as determined in accordance with U.S.
GAAP, excluding the impact of share-based compensation expense
which is non-cash in nature. Main Street believes presenting
distributable net investment income, distributable net realized
income, and related per share measures are useful and
appropriate supplemental disclosures for analyzing its financial
performance since share-based compensation does not require
settlement in cash. However, distributable net investment income
and distributable net realized income are non U.S. GAAP measures
and should not be considered as replacements to net investment
income, net realized income, and other earnings measures
presented in accordance with U.S. GAAP. Instead, distributable
net investment income and distributable net realized income
should be reviewed only in connection with such U.S. GAAP
measures in analyzing Main Streets financial performance.
A reconciliation of net investment income in accordance with
U.S. GAAP to distributable net investment income and
distributable net realized income is presented in the table
above. |
Investment
Income
For the year ended December 31, 2008, total investment
income was $17.3 million, a $4.8 million, or 39%,
increase over the $12.5 million of total investment income
for the year ended December 31, 2007. The increase was
attributable to a $4.6 million increase in interest, fee
and dividend income from investments and a $0.2 million
increase in interest income from idle funds, which was
principally earned on the remaining proceeds from our IPO. The
increase in interest, fee and dividend income was primarily
attributable to (i) higher average levels of outstanding
debt investments, which was principally due to the closing of
eight new debt investments since December 31, 2007,
partially offset by debt repayments received during the same
period and certain portfolio investments that were on
non-accrual status or written off in 2008,
(ii) significantly higher levels of cash dividend income
from portfolio equity investments, and (iii) higher levels
of fee income. For the year ended December 31, 2008, Main
Street received approximately $3 million in cash dividend
40
payments from portfolio company equity investments. These
dividend payments were paid to Main Street based upon the
accumulated earnings and available cash of certain portfolio
companies for the year ended December 31, 2008. Future
dividend payments will vary due to changes in portfolio company
accumulated earnings and available cash.
Expenses
For the year ended December 31, 2008, total expenses
increased by approximately $1.0 million, or 17%, to
approximately $7.0 million from $6.0 million for the
year ended December 31, 2007. Share-based compensation
expense recognized during 2008 related to non-cash amortization
expense for restricted share grants made in July 2008 totaled
$0.5 million. There were no similar expenses incurred
during 2007. In addition, 2007 operating expenses included
$0.7 million of costs related to Main Streets IPO
which was completed in October 2007. There were no similar
expenses incurred during 2008. Operating expenses, excluding the
non-cash, share-based compensation expense and the 2007
IPO-related expenses discussed above, increased
$1.2 million in 2008 compared with 2007 due to a
$0.7 million increase in general and administrative expense
associated with higher costs to operate as a public company and
a $0.5 million increase in interest expense as a result of
an additional $9.9 million of SBIC Debentures borrowed
through the Fund during 2007, and unused commitment fees on two
credit facilities totaling $80 million, one entered into in
December 2007 and the other in October 2008, by MSCC.
Distributable
Net Investment Income
Distributable net investment income for the year ended
December 31, 2008 was $10.8 million, or a 66%
increase, compared to distributable net investment income of
$6.5 million during the year ended December 31, 2007.
The increase in distributable net investment income was
attributable to the increase in total investment income
partially offset by the increase in total expenses discussed
above.
Net
Investment Income
Net investment income for the year ended December 31, 2008
was $10.3 million, or a 58% increase, compared to net
investment income of $6.5 million during the year ended
December 31, 2007. The increase in net investment income
was attributable to the increase in total investment income
partially offset by the increase in total expenses discussed
above.
Distributable
Net Realized Income
For the year ended December 31, 2008, the net realized
gains from investments was $1.4 million, representing a
$3.3 million, or 70%, decrease over the net realized gains
of $4.7 million during the year ended December 31,
2007. The net realized gains during the year ended
December 31, 2008 principally related to the realized gains
recognized on equity investments in four portfolio companies,
offset by realized losses on debt and equity investments in two
portfolio companies, compared to higher net realized gains
recognized on equity investments in four portfolio companies
during the year ended December 31, 2007.
The higher distributable net investment income in the year ended
December 31, 2008 offset by the lower net realized gains
during that period resulted in a $1.0 million, or 9%,
increase in the distributable net realized income for the year
ended December 31, 2008 compared with the year ended
December 31, 2007.
Net
Realized Income
The higher net investment income in the year ended
December 31, 2008 offset by the lower net realized gains
during that period resulted in a $0.5 million, or 4%,
increase in the net realized income for the year ended
December 31, 2008 compared with the corresponding period in
2007.
41
Net
Increase in Net Assets Resulting from Operations
For the year ended December 31, 2008, the net increase in
net assets resulting from operations was $10.9 million in
2008 compared with $2.5 million for the year ended
December 31, 2007. The $4.0 million net change in
unrealized depreciation from investments for 2008 was
attributable to (i) $2.9 million from the accounting
reversal of net unrealized appreciation attributable to the
total net realized gain on the exit of six portfolio
investments, (ii) unrealized depreciation on nine
investments in portfolio companies totaling $8.9 million,
offset by unrealized appreciation on thirteen investments in
portfolio companies totaling $8.7 million, and
(iii) $0.9 million in unrealized depreciation
attributable to Main Streets investment in its affiliated
investment manager. During 2008, Main Street also recognized a
cumulative income tax benefit of $3.2 million primarily
consisting of deferred tax benefits related to net unrealized
losses on certain portfolio investments and the difference
between taxable income and book income from equity investments
which are flow through entities owned by MSEI, our wholly owned
taxable subsidiary. We do not anticipate incurring this level of
tax benefit in future periods.
Comparison
of years ended December 31, 2007, and December 31,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
Net Change
|
|
|
|
2007
|
|
|
2006
|
|
|
Amount
|
|
|
%
|
|
|
|
(Dollars in millions)
|
|
|
Total investment income
|
|
$
|
12.5
|
|
|
$
|
9.8
|
|
|
$
|
2.7
|
|
|
|
28
|
%
|
Total expenses
|
|
|
(6.0
|
)
|
|
|
(4.9
|
)
|
|
|
(1.1
|
)
|
|
|
23
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
6.5
|
|
|
|
4.9
|
|
|
|
1.6
|
|
|
|
33
|
%
|
Total net realized gain (loss) from investments
|
|
|
4.7
|
|
|
|
2.4
|
|
|
|
2.3
|
|
|
|
93
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized income
|
|
|
11.2
|
|
|
|
7.3
|
|
|
|
3.9
|
|
|
|
53
|
%
|
Net change in unrealized appreciation (depreciation) from
investments
|
|
|
(5.4
|
)
|
|
|
8.5
|
|
|
|
(13.9
|
)
|
|
|
NA
|
|
Income tax benefit (provision)
|
|
|
(3.3
|
)
|
|
|
|
|
|
|
(3.3
|
)
|
|
|
NA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting from operations
|
|
$
|
2.5
|
|
|
$
|
15.8
|
|
|
$
|
(13.3
|
)
|
|
|
(84
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
Income
For the year ended December 31, 2007, total investment
income was $12.5 million, a $2.7 million, or 28%,
increase over the $9.8 million of total investment income
for the year ended December 31, 2006. The increase was
primarily attributable to a $2.3 million increase in
interest, fee and dividend income from investments and a
$0.4 million increase in interest income from idle funds
principally related to funds received from the IPO. The increase
in interest, fee and dividend income from investments was
primarily attributable to (i) higher average levels of
outstanding debt investments, which was principally due to the
closing of six new debt investments in the year ended
December 31, 2007 and several new debt investments in the
last half of 2006, partially offset by debt repayments received
during the same periods, and (ii) higher levels of dividend
income from portfolio equity investments.
Expenses
For the year ended December 31, 2007, total expenses
increased by approximately $1.1 million, or 23%, to
approximately $6.0 million from $4.9 million for the
year ended December 31, 2006. The increase in total
expenses was primarily attributable to a $0.5 million
increase in interest expense as a result of the additional
$9.9 million of SBIC Debentures borrowed by the Fund during
the year ended December 31, 2007 and $0.7 million of
professional costs related to the IPO. The professional costs
related to the IPO principally consisted of audit and review
costs as well as other offering-related professional fees. In
addition, general and administrative expenses increased
$0.3 million primarily attributable to an increase in
administration costs associated with being a public company. The
increase in total expenses was partially offset by a decrease of
$0.4 million in management fees paid due to Main
Streets internally managed operating structure subsequent
to the IPO.
42
Net
Investment Income
As a result of the $2.7 million increase in total
investment income as compared to the $1.1 million increase
in total expenses, net investment income for the year ended
December 31, 2007, was $6.5 million, or a 33%
increase, compared to net investment income of $4.9 million
during the year ended December 31, 2006. Professional fees
related to the IPO represented $0.7 million of the
$1.1 million increase in total expenses, or 11.7% of total
expenses for the year ended December 31, 2007.
Net
Realized Income
For the year ended December 31, 2007, net realized gains
from investments were $4.7 million, representing a
$2.3 million increase over net realized gains during the
year ended December 31, 2006. The higher level of net
realized gains during the year ended December 31, 2007
principally related to the realized gains recognized on equity
investments in four portfolio companies compared to lower net
realized gains recognized on equity investments in five
portfolio companies during the year ended December 31, 2006.
The higher net realized gains in the year ended
December 31, 2007 combined with the higher net investment
income during 2007 resulted in a $3.9 million, or 53%,
increase, in the net realized income for the year ended
December 31, 2007 compared with 2006.
Net
Increase in Net Assets Resulting from Operations
During the year ended December 31, 2007, we recorded a net
change in unrealized depreciation in the amount of
$5.4 million, or a $13.9 million decrease over the
$8.5 million in net change in unrealized appreciation for
the year ended December 31, 2006. The net change in
unrealized depreciation for the year ended December 31,
2007 included unrealized appreciation on 13 equity investments
in portfolio companies, partially offset by unrealized
depreciation on 6 equity investments, the reclassification of
$3.8 million of previously recognized unrealized gains into
realized gains on 5 exited investments and $0.4 million in
unrealized depreciation attributable to Main Streets
investment in the affiliated Investment Manager.
Subsequent to the Formation Transactions and the IPO, we
recognized a cumulative income tax expense of $3.3 million
primarily consisting of non-cash deferred taxes related to net
unrealized gains from certain portfolio equity investments
transferred into MSEI, our wholly-owned taxable subsidiary.
These equity investments had historically been made in portfolio
companies which were pass through entities for tax
purposes. The transfer of the equity investments into MSEI was
required in order to comply with the RIC source
income requirements. We do not anticipate incurring this
level of deferred tax expense in future periods, given the
amount recognized in the fourth quarter of fiscal 2007
represents the cumulative impact of deferred taxes related to
net unrealized gains on the equity investments transferred.
As a result of these events, our net increase in net assets
resulting from operations during the year ended
December 31, 2007, was $2.5 million, or an 84%
decrease compared to a net increase in net assets resulting from
operations of $15.8 million during the year ended
December 31, 2006.
Liquidity
and Capital Resources
Cash
Flows
For the year ended December 31, 2008, we experienced a net
decrease in cash and cash equivalents of $6.5 million.
During that period, we generated $10.9 million of cash from
our operating activities, primarily from net investment income
partially offset by the semi-annual interest payments on our
SBIC debentures, through the Fund. We used $3.5 million in
net cash for investing activities, principally due to the
funding of new investments and several smaller follow-on
investments for a total of $47.7 million. We also made a
$4.2 million investment in idle funds investments, and
received proceeds from the maturity of a $24.1 million
investment in idle funds investments. We received
$16.3 million in cash proceeds from repayment of debt
investments and $8.0 million of cash proceeds from the
redemption and sale of equity investments. For the year ended
December 31, 2008, we used $13.9 million in cash for
financing activities, which principally
43
consisted of $13.2 million in cash dividends to
stockholders, $0.4 million in deferred loan origination
costs and $0.3 million used in the purchase of treasury
stock pursuant to our open market share repurchase program.
For the year ended December 31, 2007, we experienced a net
increase in cash and equivalents in the amount of
$28.1 million. During 2007, we generated $5.4 million
of cash from our operating activities, primarily from net
investment income. We used $38.0 million in net cash for
investing activities, principally due to the funding of new
investments and several smaller follow-on investments for a
total of $29.5 million of invested capital and the purchase
of $24.1 million of investments in idle funds investments,
partially offset by $9.6 million in cash proceeds from
repayment of debt investments and $5.9 million of cash
proceeds from the redemption or sale of several equity
investments. We generated $60.7 million in cash from
financing activities, which principally consisted of the net
proceeds of $60.2 million from the IPO and
$9.9 million in additional SBIC debenture borrowings,
through the Fund, partially offset by $7.5 million of cash
distributions to partners and stockholders and $1.6 million
of payments related to IPO costs.
For the year ended December 31, 2006, we experienced a net
decrease in cash and cash equivalents in the amount of
$12.5 million. During 2006, we generated $4.2 million
of cash from our operating activities, primarily from net
investment income. During 2006, we used $10.9 million in
cash for investing activities. The 2006 net cash used for
investing activities included the funding of new or follow on
investments for a total of $28.1 million of invested
capital, partially offset by $12.2 million in cash proceeds
from repayments of debt investments and $5.0 million of
cash proceeds from the redemption or sale of several equity
investments. During 2006, we used $5.9 million in cash for
financing activities, which principally consisted of
$6.2 million of cash distributions to partners (including a
$0.5 million return of capital distribution), partially
offset by additional partner contributions.
Capital
Resources
As of December 31, 2008, we had $39.8 million in cash
and cash equivalents plus idle funds investments, and our net
assets totaled $112.4 million. On October 24, 2008,
Main Street entered into a $30 million, three-year
investment credit facility (the Investment Facility)
with Branch Banking and Trust Company
(BB&T) and Compass Bank, as lenders, and
BB&T, as administrative agent for the lenders. The purpose
of the Investment Facility is to provide additional liquidity in
support of future investment and operational activities. The
Investment Facility allows for an increase in the total size of
the facility up to $75 million, subject to certain
conditions, and has a maturity date of October 24, 2011.
Borrowings under the Investment Facility bear interest, subject
to Main Streets election, on a per annum basis equal to
(i) the applicable LIBOR rate plus 2.75% or (ii) the
applicable base rate plus 0.75%. Main Street will pay unused
commitment fees of 0.375% per annum on the average unused lender
commitments under the Investment Facility. The Investment
Facility is secured by certain assets of MSCC, MSEI and the
Investment Manager. The Investment Facility contains certain
affirmative and negative covenants, including but not limited
to: (i) maintaining a minimum liquidity of not less than
10% of the aggregate principal amount outstanding,
(ii) maintaining an interest coverage ratio of at least
2.00 to 1.00, and (iii) maintaining a minimum tangible net
worth. At December 31, 2008, Main Street had no borrowings
outstanding under the Investment Facility, and Main Street was
in compliance with all covenants of the Investment Facility.
Due to our existing cash and cash equivalents plus idle funds
investments and the additional borrowing capacity under the
Investment Facility, we project that we will have sufficient
liquidity to fund our investment and operational activities
throughout all of calendar year 2009 and well into 2010.
However, this projection will be impacted by, among other
things, the pace of new and follow on investments, investment
redemptions, the level of cash flow from operations and cash
flow from realized gains, and the level of dividends paid in
cash.
We anticipate that we will continue to fund our investment
activities through existing cash and cash equivalents plus idle
funds investments and a combination of future debt and
additional equity capital. Due to the Funds status as a
licensed SBIC, we have the ability to issue, through the Fund,
debentures guaranteed by the Small Business Administration (the
SBA) at favorable interest rates. Under the
regulations applicable to
44
SBICs, an SBIC can have outstanding debentures guaranteed by the
SBA generally in an amount up to twice its regulatory capital,
which generally equates to the amount of its equity capital.
The 2009 Stimulus Bill contains several provisions applicable to
SBIC funds, including the Fund. One of the key SBIC-related
provisions included in the 2009 Stimulus Bill increases the
maximum amount of combined SBIC leverage (or SBIC leverage cap)
to $225 million for affiliated SBIC funds. The prior
maximum amount of SBIC leverage available to affiliated SBIC
funds was approximately $137 million, as adjusted annually
based upon changes in the Consumer Price Index. Due to the
increase in the maximum amount of SBIC leverage available, we
will now have access to incremental SBIC leverage to support our
future investment activities. Since the increase in the SBIC
leverage cap applies to affiliated SBIC funds, we will allocate
such increased borrowing capacity between the Fund, our wholly
owned SBIC subsidiary, and MSC II, an independently owned SBIC
that is managed by Main Street and therefore deemed to be
affiliated with the Fund for SBIC regulatory purposes. It is
currently estimated that at least $55 million to
$60 million of additional SBIC leverage is now accessible
by Main Street for future investment activities, subject to the
required capitalization of the Fund.
Debentures guaranteed by the SBA have fixed interest rates that
approximate prevailing
10-year
Treasury Note rates plus a spread and have a maturity of ten
years with interest payable semi-annually. The principal amount
of the debentures is not required to be paid before maturity but
may be pre-paid at any time. Debentures issued prior to
September 2006 were subject to pre-payment penalties during
their first five years. Those pre-payment penalties no longer
apply to debentures issued after September 1, 2006. On
December 31, 2008, we, through the Fund, had
$55 million of outstanding indebtedness guaranteed by the
SBA, which carried an average fixed interest rate of
approximately 5.8%. The first maturity related to the
Funds SBIC debentures does not occur until 2013.
On December 31, 2007, we entered into a Treasury Secured
Revolving Credit Agreement (the Treasury Facility)
among us, Wachovia Bank, National Association, and Branch
Banking and Trust Company (BB&T), as
administrative agent for the lenders. Under the Treasury
Facility, the lenders agreed to extend revolving loans to us in
an amount not to exceed $100 million; however, due to the
maturation of our investment portfolio and the additional
flexibility provided by the Investment Facility, we unilaterally
reduced the Treasury Facility from $100 million to
$50 million during October 2008. The reduction in the size
of the Treasury Facility resulted in a 50% reduction in the
amount of unused commitment fees paid by us. The purpose of the
Treasury Facility is to provide us flexibility in the sizing of
portfolio investments and to facilitate the growth of our
investment portfolio. The Treasury Facility has a two-year term
and bears interest, at our option, either (i) at the LIBOR
rate or (ii) at a published prime rate of interest, plus
0.25% in either case. The applicable interest rates under the
Treasury Facility would be increased by 0.15% if usage under the
Treasury Facility is in excess of 50% of the days within a given
calendar quarter. The Treasury Facility also requires payment of
0.15% per annum in unused commitment fees based on the average
daily unused balances under the facility. The Treasury Facility
is secured by certain securities accounts maintained by
BB&T and is also guaranteed by the Investment Manager. The
Treasury Facility contains certain affirmative and negative
covenants, including but not limited to: (i) maintaining a
cash collateral coverage ratio of at least 1.01 to 1.0,
(ii) maintaining an interest coverage ratio of at least 2.0
to 1.0, and (iii) maintaining a minimum tangible net worth.
At December 31, 2008, we had no borrowings outstanding
under the Treasury Facility, and Main Street was in compliance
with all covenants of the Treasury Facility.
We intend to generate additional cash from future offerings of
securities, future borrowings, repayments or sales of
investments, and cash flow from operations, including income
earned from investments in our portfolio companies and, to a
lesser extent, from the temporary investments of cash in
U.S. government securities and other idle funds investments
that mature in one year or less with the exception of
diversified bond funds. Our primary uses of funds will be
investments in portfolio companies, operating expenses and cash
distributions to holders of our common stock.
If our common stock trades below our net asset value per share,
we will generally not be able to issue additional common stock
at the market price unless our stockholders approve such a sale
and our Board of Directors makes certain determinations. See
Risk Factors Risks Relating to Our Business
and Structure
45
Stockholders may incur dilution if we sell shares of our common
stock in one or more offerings at prices below the then current
net asset value per share of our common stock or issue
securities to subscribe to, convert to or purchase shares of our
common stock for a discussion of the proposal approved by
our stockholders at our 2008 annual meeting of stockholders that
authorizes us to sell shares of our common stock below the then
current net asset value per share of our common stock in one or
more offerings for a period of one year ending on the earlier of
June 16, 2009 or the date of our 2009 annual meeting of
stockholders. We will need approval of similar proposals by our
stockholders to issue shares below the then current net asset
value per share after the earlier of June 16, 2009 and the
date of our 2009 annual meeting of stockholders.
In order to satisfy the Code requirements applicable to a RIC,
we intend to distribute to our stockholders substantially all of
our taxable income, but we may also elect to periodically
spillover certain excess undistributed taxable income from one
tax year into the next tax year. In addition, as a BDC, we
generally are required to meet a coverage ratio of total assets
to total senior securities, which include all of our borrowings
and any preferred stock we may issue in the future, of at least
200%. This requirement limits the amount that we may borrow. In
January 2008, we received exemptive relief from the SEC that
permits us to exclude SBA-guaranteed debt issued by the Fund
from our asset coverage ratio, which, in turn, enables us to
fund more investments with debt capital.
Current
Market Conditions
Beginning in late 2007, the United States entered a recession.
Throughout 2008, the economy continued to deteriorate and many
believe that the current recession could continue for an
extended period. During 2008, banks and others in the financial
services industry reported significant write-downs in the fair
value of their assets, which has led to the failure of a number
of banks and investment companies, a number of distressed
mergers and acquisitions, the government take-over of the
nations two largest government-sponsored mortgage
companies, and the passage of the $700 billion Emergency
Economic Stabilization Act of 2008 in October 2008 and the
$787 billion 2009 Stimulus Bill. In addition, the stock
market has declined significantly, with both the S&P 500
and the NASDAQ Global Select Market (on which our stock trades),
declining by nearly 40% between December 31, 2007 and
December 31, 2008. As the recession deepened during 2008,
unemployment rose and consumer confidence declined, which led to
significant reductions in spending by both consumers and
businesses.
Although we have been able to secure access to additional
liquidity, including the recently obtained $30 million
investment credit facility and the increase in available
leverage through the SBIC program as part of the 2009 Stimulus
Bill, the current turmoil in the debt markets and uncertainty in
the equity capital markets provides no assurance that debt or
equity capital will be available to us in the future on
favorable terms, or at all.
The deterioration in consumer confidence and a general reduction
in spending by both consumers and businesses has had an adverse
effect on a number of the industries in which some of our
portfolio companies operate. In the event that the United States
economy remains in a protracted period of weakness, the results
of some of the lower middle-market companies like those in which
we invest, will continue to experience deterioration, which
could ultimately lead to difficulty in meeting their debt
service requirements and an increase in their defaults. In
addition, the end markets for certain of our portfolio
companies products and services have experienced, and
continue to experience, negative economic trends. We can provide
no assurance that the performance of certain of our portfolio
companies will not be negatively impacted by economic or other
conditions which could have a negative impact on our future
results.
Recently
Issued Accounting Standards
In June 2008, the Financial Accounting Standards Board
(FASB) issued
EITF 03-6-1,
Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities. This FASB
Staff Position (FSP) addresses whether instruments
granted in share-based payment transactions are participating
securities prior to vesting and, therefore, need to be included
in the earnings allocation in computing earnings per share
(EPS). This FSP will be effective for financial
statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those years.
All prior-period EPS data
46
presented will be adjusted retrospectively (including interim
financial statements, summaries of earnings, and selected
financial data) to conform to the provisions of this FSP. Early
application is not permitted. We are currently analyzing the
effect, if any, this statement may have on our consolidated
results of operations.
In October 2008, the FASB issued Staff Position
No. 157-3,
Determining the Fair Value of a Financial Asset When the
Market for That Asset is Not Active
(FSP 157-3).
FSP 157-3
provides an illustrative example of how to determine the fair
value of a financial asset in an inactive market. The FSP does
not change the fair value measurement principles set forth in
SFAS 157. Since adopting SFAS 157 in January 2008, our
practices for determining the fair value of our investment
portfolio have been, and continue to be, consistent with the
guidance provided in the example in
FSP 157-3.
Therefore, our adoption of
FSP 157-3
did not affect our practices for determining the fair value of
our investment portfolio and does not have a material effect on
our financial position or results of operations.
Inflation
Inflation has not had a significant effect on our results of
operations in any of the reporting periods presented in this
report. However, our portfolio companies have and may continue
to experience the impacts of inflation on their operating
results, including periodic escalations in their costs for raw
materials and required energy consumption.
Off-Balance
Sheet Arrangements
We may be a party to financial instruments with off-balance
sheet risk in the normal course of business to meet the
financial needs of our portfolio companies. These instruments
include commitments to extend credit and involve, to varying
degrees, elements of liquidity and credit risk in excess of the
amount recognized in the balance sheet. At December 31,
2008, we had two outstanding commitments to fund unused
revolving loans for up to $900,000.
Contractual
Obligations
As of December 31, 2008, our future fixed commitments for
cash payments on contractual obligations for each of the next
five years and thereafter are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014 and
|
|
|
|
Total
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
Thereafter
|
|
|
|
(Dollars in thousands)
|
|
|
|
(Unaudited)
|
|
|
SBIC debentures payable
|
|
$
|
55,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,000
|
|
|
$
|
51,000
|
|
Interest due on SBIC debentures
|
|
|
21,495
|
|
|
|
3,179
|
|
|
|
3,179
|
|
|
|
3,179
|
|
|
|
3,188
|
|
|
|
3,179
|
|
|
|
5,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
76,495
|
|
|
$
|
3,179
|
|
|
$
|
3,179
|
|
|
$
|
3,179
|
|
|
$
|
3,188
|
|
|
$
|
7,179
|
|
|
$
|
56,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MSCC is obligated to make payments under a support services
agreement with the Investment Manager. Subsequent to the
completion of the Formation Transactions and the IPO, the
Investment Manager is reimbursed for its excess expenses
associated with providing investment management and other
services to MSCC and its subsidiaries, as well as MSC II. Each
quarter, as part of the support services agreement, MSCC makes
payments to cover all expenses incurred by the Investment
Manager, less the recurring management fees that the Investment
Manager receives from MSC II pursuant to a long-term investment
advisory services agreement and any other fees received for
providing external services.
Related
Party Transactions
We co-invested with MSC II in several existing portfolio
investments prior to the IPO, but did not co-invest with MSC II
subsequent to the IPO and prior to June 2008. In June 2008, we
received exemptive relief from the SEC to allow us to resume
co-investing with MSC II in accordance with the terms of such
exemptive relief. MSC II is managed by the Investment Manager,
and the Investment Manager is wholly owned by MSCC. MSC II is an
SBIC fund with similar investment objectives to Main Street and
which began its
47
investment operations in January 2006. The co-investments among
Main Street and MSC II had all been made at the same time and on
the same terms and conditions. The co-investments were also made
in accordance with the Investment Managers conflicts
policy and in accordance with the applicable SBIC conflict of
interest regulations.
As discussed further in Note D to the accompanying
consolidated financials statements, Main Street paid certain
management fees to the Investment Manager during the year ended
December 31, 2007. Subsequent to the completion of the
Formation Transactions, the Investment Manager is a wholly owned
portfolio company of Main Street. At December 31, 2008 and
2007, the Investment Manager had a receivable of $302,633 and a
payable of $207,783, respectively, with MSCC related to
recurring expenses required to support MSCCs business.
RECENT
DEVELOPMENTS
The recently enacted 2009 Stimulus Bill contains several
provisions applicable to SBIC funds, including the Fund, our
wholly owned subsidiary. One of the key SBIC- related provisions
included in the 2009 Stimulus Bill increases the maximum amount
of combined SBIC leverage (or SBIC leverage cap) to
$225 million for affiliated SBIC funds. The prior maximum
amount of SBIC leverage available to affiliated SBIC funds was
approximately $137 million, as adjusted annually based upon
changes in the Consumer Price Index. Due to the increase in the
maximum amount of SBIC leverage available, we will now have
access to incremental SBIC leverage to support our future
investment activities. Since the increase in the SBIC leverage
cap applies to affiliated SBIC funds, we will allocate such
increased borrowing capacity between our wholly owned SBIC
subsidiary and MSC II, an independently owned SBIC that is
managed by Main Street and therefore deemed to be affiliated
with the Fund for SBIC regulatory purposes. It is currently
estimated that at least $55 million to $60 million of
additional SBIC leverage is now accessible by Main Street for
future investment activities, subject to the required
capitalization of our wholly owned SBIC subsidiary.
SENIOR
SECURITIES
Information about our senior securities is shown in the
following table as of December 31 for the years indicated in the
table, unless otherwise noted. Grant Thornton LLPs report
on the senior securities table as of December 31, 2008, is
attached as an exhibit to the registration statement of which
this prospectus is a part.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
|
|
|
Involuntary
|
|
|
|
|
|
|
|
|
|
Exclusive of
|
|
|
Asset
|
|
|
Liquidating
|
|
|
Average
|
|
|
|
|
|
|
Treasury
|
|
|
Coverage
|
|
|
Preference
|
|
|
Market Value
|
|
|
|
|
Class and Year
|
|
Securities(1)
|
|
|
per Unit(2)
|
|
|
per Unit(3)
|
|
|
per Unit(4)
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBIC debentures payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
$
|
22,000
|
|
|
|
1,784
|
|
|
|
|
|
|
|
N/A
|
|
|
|
|
|
2005
|
|
|
45,100
|
|
|
|
1,738
|
|
|
|
|
|
|
|
N/A
|
|
|
|
|
|
2006
|
|
|
45,100
|
|
|
|
1,959
|
|
|
|
|
|
|
|
N/A
|
|
|
|
|
|
2007
|
|
|
55,000
|
|
|
|
3,094
|
|
|
|
|
|
|
|
N/A
|
|
|
|
|
|
2008
|
|
|
55,000
|
|
|
|
3,043
|
|
|
|
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
(1) |
|
Total amount of each class of senior securities outstanding at
the end of the period presented. |
|
(2) |
|
Asset coverage per unit is the ratio of the carrying value of
our total consolidated assets, less all liabilities and
indebtedness not represented by senior securities, to the
aggregate amount of senior securities representing indebtedness.
Asset coverage per unit is expressed in terms of dollar amounts
per $1,000 of indebtedness. |
|
(3) |
|
The amount to which such class of senior security would be
entitled upon the involuntary liquidation of the issuer in
preference to any security junior to it. The
indicates information which the Securities and Exchange
Commission expressly does not require to be disclosed for
certain types of senior securities. |
|
(4) |
|
Not applicable because senior securities are not registered for
public trading. |
48
BUSINESS
We are a principal investment firm focused on providing
customized financing solutions to lower middle-market companies,
which we generally define as companies with annual revenues
between $10 million and $100 million. Our investment
objective is to maximize our portfolios total return by
generating current income from our debt investments and
realizing capital appreciation from our equity and
equity-related investments, including warrants, convertible
securities and other rights to acquire equity securities in a
portfolio company. Our investments generally range in size from
$2 million to $15 million. Our ability to invest
across a companys capital structure, from senior secured
loans to subordinated debt to equity securities, allows us to
offer portfolio companies a comprehensive suite of financing
solutions, or one-stop financing.
Our investments are made through both MSCC and the Fund. Since
the IPO, MSCC and the Fund have co-invested in substantially
every investment we have made. MSCC and the Fund share the same
investment strategies and criteria in the lower middle-market,
although they are subject to different regulatory regimes. See
Regulation. An investors return in MSCC will
depend, in part, on the Funds investment returns as the
Fund is a wholly owned subsidiary of MSCC.
We typically seek to work with entrepreneurs, business owners
and management teams to provide customized financing for
strategic acquisitions, business expansion and other growth
initiatives, ownership transitions and recapitalizations. In
structuring transactions, we seek to protect our rights, manage
our risk and create value by: (i) providing financing at
lower leverage ratios; (ii) generally taking first priority
liens on assets; and (iii) providing significant equity
incentives for management teams of our portfolio companies. We
seek to avoid competing with other capital providers for
transactions because we believe competitive transactions often
have execution risks and can result in potential conflicts among
creditors and lower returns due to more aggressive valuation
multiples and higher leverage ratios.
As of December 31, 2008, Main Street had debt and equity
investments in 31 portfolio companies. Approximately 84% of our
total portfolio investments at cost, excluding our 100% equity
interest in the Investment Manager, were in the form of debt
investments and 91% of such debt investments at cost were
secured by first priority liens on the assets of our portfolio
companies. As of December 31, 2008, Main Street had a
weighted average effective yield on its debt investments of 14%.
Weighted average yields are computed using the effective
interest rates for all debt investments at December 31,
2008, including amortization of deferred debt origination fees
and accretion of original issue discount. At December 31,
2008, we had equity ownership in approximately 94% of our
portfolio companies and the average fully diluted equity
ownership in those portfolio companies was approximately 25%.
Business
Strategies
Our investment objective is to maximize our portfolios
total return by generating current income from our debt
investments and realizing capital appreciation from our equity
and equity-related investments, including warrants, convertible
securities and other rights to acquire equity securities in a
portfolio company. We have adopted the following business
strategies to achieve our investment objective:
|
|
|
|
|
Delivering Customized Financing Solutions. We
believe our ability to provide a broad range of customized
financing solutions to lower middle-market companies sets us
apart from other capital providers that focus on providing a
limited number of financing solutions. We offer to our portfolio
companies customized debt financing solutions with equity
components that are tailored to the facts and circumstances of
each situation. Our ability to invest across a companys
capital structure, from senior secured loans to subordinated
debt to equity securities, allows us to offer our portfolio
companies a comprehensive suite of financing solutions, or
one-stop financing.
|
|
|
|
Focusing on Established Companies in the Lower
Middle-Market. We generally invest in companies
with established market positions, experienced management teams
and proven revenue streams. Those companies generally possess
better risk-adjusted return profiles than newer companies that
are building management or are in the early stages of building a
revenue base. In addition, established lower middle-market
companies generally provide opportunities for capital
appreciation.
|
49
|
|
|
|
|
Leveraging the Skills and Experience of Our Investment
Team. Our investment team has significant
experience in lending to and investing in lower middle-market
companies. The members of our investment team have broad
investment backgrounds, with prior experience at private
investment funds, investment banks and other financial services
companies, and currently include seven certified public
accountants and one chartered financial analyst. The expertise
of our investment team in analyzing, valuing, structuring,
negotiating and closing transactions should provide us with
competitive advantages by allowing us to consider customized
financing solutions and non-traditional and complex structures.
|
|
|
|
Investing Across Multiple Industries. We seek
to maintain a portfolio of investments that is appropriately
balanced among various companies, industries, geographic regions
and end markets. This portfolio balance is intended to mitigate
the potential effects of negative economic events for particular
companies, regions and industries.
|
|
|
|
Capitalizing on Strong Transaction Sourcing
Network. Our investment team seeks to leverage
its extensive network of referral sources for investments in
lower middle-market companies. We have developed a reputation in
our marketplace as a responsive, efficient and reliable source
of financing, which has created a growing stream of proprietary
deal flow for us.
|
|
|
|
Benefiting from Lower Cost of Capital. The
Funds SBIC license has allowed it to issue SBA-guaranteed
debentures. SBA-guaranteed debentures carry long-term fixed
rates that are generally lower than rates on comparable bank and
other debt. Because lower cost SBA leverage is, and will
continue to be, a significant part of our capital base through
the Fund, our relative cost of debt capital should be lower than
many of our competitors. In addition, the SBIC leverage that we
receive through the Fund represents a stable, long-term
component of our capital structure.
|
Investment
Criteria
Our investment team has identified the following investment
criteria that it believes are important in evaluating
prospective portfolio companies. Our investment team uses these
criteria in evaluating investment opportunities. However, not
all of these criteria have been, or will be, met in connection
with each of our investments.
|
|
|
|
|
Proven Management Team with Meaningful Financial
Commitment. We look for operationally-oriented
management with direct industry experience and a successful
track record. In addition, we expect the management team of each
portfolio company to have meaningful equity ownership in the
portfolio company to better align our respective economic
interests. We believe management teams with these attributes are
more likely to manage the companies in a manner that protects
our debt investment and enhances the value of our equity
investment.
|
|
|
|
Established Companies with Positive Cash
Flow. We seek to invest in established companies
in the lower middle-market with sound historical financial
performance. We typically focus on companies that have
historically generated EBITDA of $1.0 million to
$10.0 million and commensurate levels of free cash flow. We
generally do not intend to invest in
start-up
companies or companies with speculative business plans.
|
|
|
|
Defensible Competitive Advantages/Favorable Industry
Position. We primarily focus on companies having
competitive advantages in their respective markets
and/or
operating in industries with barriers to entry, which may help
to protect their market position and profitability.
|
|
|
|
Exit Alternatives. We expect that the primary
means by which we exit our debt investments will be through the
repayment of our investment from internally generated cash flow
and/or
refinancing. In addition, we seek to invest in companies whose
business models and expected future cash flows may provide
alternate methods of repaying our investment, such as through a
strategic acquisition by other industry participants or a
recapitalization.
|
50
Portfolio
Investments
Debt
Investments
Historically, we have made debt investments principally in the
form of single tranche debt. Single tranche debt financing
involves issuing one debt security that blends the risk and
return profiles of both secured and subordinated debt. We
believe that single tranche debt is more appropriate for many
lower middle-market companies given their size in order to
reduce structural complexity and potential conflicts among
creditors.
Our debt investments generally have terms of three to seven
years, with limited required amortization prior to maturity, and
provide for monthly or quarterly payment of interest at fixed
interest rates generally between 12% and 14% per annum, payable
currently in cash. In some instances, we have provided floating
interest rates for a portion of a single tranche debt security.
In addition, certain debt investments may have a form of
interest that is not paid currently but is accrued and added to
the loan balance and paid at maturity. We refer to this as
payment-in-kind
or PIK interest. We typically structure our debt investments
with the maximum seniority and collateral that we can reasonably
obtain while seeking to achieve our total return target. In most
cases, our debt investment will be collateralized by a first
priority lien on substantially all the assets of the portfolio
company. As of December 31, 2008, 91% of our debt
investments at cost were secured by first priority liens on the
assets of portfolio companies.
In addition to seeking a senior lien position in the capital
structure of our portfolio companies, we seek to limit the
downside potential of our investments by negotiating covenants
that are designed to protect our investments while affording our
portfolio companies as much flexibility in managing their
businesses as possible. Such restrictions may include
affirmative and negative covenants, default penalties, lien
protection, change of control or change of management
provisions, key-man life insurance, guarantees, equity pledges,
personal guaranties, where appropriate, and put rights. In
addition, we typically seek board representation or observation
rights in all of our portfolio companies.
While we will continue to focus on single tranche debt
investments, we also anticipate structuring some of our debt
investments as mezzanine loans. We anticipate that these
mezzanine loans will be primarily junior secured or unsecured,
subordinated loans that provide for relatively high fixed
interest rates that will provide us with significant current
interest income. These loans typically will have interest-only
payments in the early years, with amortization of principal
deferred to the later years of the mezzanine loan term. Also, in
some cases, our mezzanine loans may be collateralized by a
subordinated lien on some or all of the assets of the borrower.
Typically, our mezzanine loans will have maturities of three to
five years. We will generally target fixed interest rates of 12%
to 14%, payable currently in cash for our mezzanine loan
investments with higher targeted total returns from equity
warrants, direct equity investments or PIK interest.
Warrants
In connection with our debt investments, we have historically
received equity warrants to establish or increase our equity
interest in the portfolio company. Warrants we receive in
connection with a debt investment typically require only a
nominal cost to exercise, and thus, as a portfolio company
appreciates in value, we may achieve additional investment
return from this equity interest. We typically structure the
warrants to provide provisions protecting our rights as a
minority-interest holder, as well as secured or unsecured put
rights, or rights to sell such securities back to the portfolio
company, upon the occurrence of specified events. In certain
cases, we also may obtain registration rights in connection with
these equity interests, which may include demand and
piggyback registration rights.
Direct
Equity Investments
We also will seek to make direct equity investments in
situations where it is appropriate to align our interests with
key management and stockholders, and to allow for some
participation in the appreciation in enterprise values of our
portfolio companies. We usually make our direct equity
investments in connection with debt investments. In addition, we
may have both equity warrants and direct equity positions in
some of our portfolio companies. We seek to maintain fully
diluted equity positions in our portfolio companies of 5%
51
to 50%, and may have controlling interests in some instances. We
have a value orientation toward our direct equity investments
and have traditionally been able to purchase our equity
investments at reasonable valuations.
Investment
Process
Our investment committee is responsible for all aspects of our
investment process. The current members of our investment
committee are Vincent D. Foster, our Chairman and Chief
Executive Officer, Todd A. Reppert, our President and Chief
Financial Officer, and Dwayne L. Hyzak, Senior Vice President.
Mr. Hyzak replaced David L. Magdol, Senior Vice President,
in this revolving seat on the investment committee effective
January 1, 2009 and will serve through 2009. Our investment
strategy involves a team approach, whereby potential
transactions are screened by members of our investment team
before being presented to the investment committee. Our
investment committee meets on an as needed basis depending on
transaction volume. Our investment committee generally
categorizes our investment process into seven distinct stages:
Deal
Generation/Origination
Deal generation and origination is maximized through
long-standing and extensive relationships with industry
contacts, brokers, commercial and investment bankers,
entrepreneurs, services providers such as lawyers and
accountants, as well as current and former portfolio companies
and investors. Our investment team has focused its deal
generation and origination efforts on lower middle-market
companies. We have developed a reputation as a knowledgeable,
reliable and active source of capital and assistance in this
market.
Screening
During the screening process, if a transaction initially meets
our investment criteria, we will perform preliminary due
diligence, taking into consideration some or all of the
following information:
|
|
|
|
|
a comprehensive financial model based on quantitative analysis
of historical financial performance, projections and pro forma
adjustments to determine the estimated internal rate of return;
|
|
|
|
a brief industry and market analysis; importing direct industry
expertise from other portfolio companies or investors;
|
|
|
|
preliminary qualitative analysis of the management teams
competencies and backgrounds;
|
|
|
|
potential investment structures and pricing terms; and
|
|
|
|
regulatory compliance.
|
Upon successful screening of the proposed transaction, the
investment team makes a recommendation to our investment
committee. If our investment committee concurs with moving
forward on the proposed transaction, we issue a non-binding term
sheet to the company.
Term
Sheet
The non-binding term sheet will include the key economic terms
based upon our analysis performed during the screening process
as well as a proposed timeline and our qualitative expectation
for the transaction. While the term sheet is non-binding, it
generally does require an expense deposit to be paid in order to
move the transaction to the due diligence phase. Upon execution
of a term sheet and payment of the expense deposit, we begin our
formal due diligence process.
Due
Diligence
Due diligence on a proposed investment is performed by a minimum
of two members of our investment team, whom we refer to
collectively as the deal team, and certain external resources,
who together conduct
52
due diligence to understand the relationships among the
prospective portfolio companys business plan, operations
and financial performance. Our due diligence review includes
some or all of the following:
|
|
|
|
|
initial or additional site visits with management and key
personnel;
|
|
|
|
detailed review of historical and projected financial statements;
|
|
|
|
operational reviews and analysis;
|
|
|
|
interviews with customers and suppliers;
|
|
|
|
detailed evaluation of company management, including background
checks;
|
|
|
|
review of material contracts;
|
|
|
|
in-depth industry, market, and strategy analysis; and
|
|
|
|
review by legal, environmental or other consultants, if
applicable.
|
During the due diligence process, significant attention is given
to sensitivity analyses and how the company might be expected to
perform given downside, base-case and upside
scenarios. In certain cases, we may decide not to make an
investment based on the results of the diligence process.
Document
and Close
Upon completion of a satisfactory due diligence review, the deal
team presents the findings and a recommendation to our
investment committee. The presentation contains information
including, but not limited to, the following:
|
|
|
|
|
company history and overview;
|
|
|
|
transaction overview, history and rationale, including an
analysis of transaction strengths and risks;
|
|
|
|
analysis of key customers and suppliers and key contracts;
|
|
|
|
a working capital analysis;
|
|
|
|
an analysis of the companys business strategy;
|
|
|
|
a management background check and assessment;
|
|
|
|
third-party accounting, legal, environmental or other due
diligence findings;
|
|
|
|
investment structure and expected returns;
|
|
|
|
anticipated sources of repayment and potential exit strategies;
|
|
|
|
pro forma capitalization and ownership;
|
|
|
|
an analysis of historical financial results and key financial
ratios;
|
|
|
|
sensitivities to managements financial
projections; and
|
|
|
|
detailed reconciliations of historical to pro forma results.
|
If any adjustments to the transaction terms or structures are
proposed by the investment committee, such changes are made and
applicable analyses updated. Approval for the transaction must
be made by the affirmative vote from a majority of the members
of the investment committee. Upon receipt of transaction
approval, we will re-confirm regulatory company compliance,
process and finalize all required legal documents, and fund the
investment.
Post-Investment
We continuously monitor the status and progress of the portfolio
companies. We offer managerial assistance to our portfolio
companies, giving them access to our investment experience,
direct industry
53
expertise and contacts. The same deal team that was involved in
the investment process will continue its involvement in the
portfolio company post-investment. This provides for continuity
of knowledge and allows the deal team to maintain a strong
business relationship with key management of our portfolio
companies for post-investment assistance and monitoring
purposes. As part of the monitoring process, the deal team will
analyze monthly/quarterly financial statements versus the
previous periods and year, review financial projections, meet
with management, attend board meetings and review all compliance
certificates and covenants. While we maintain limited
involvement in the ordinary course operations of our portfolio
companies, we maintain a higher level of involvement in
non-ordinary course financing or strategic activities and any
non-performing scenarios.
We also use an internally developed investment rating system to
characterize and monitor our expected level of returns on each
of our investments.
|
|
|
|
|
Investment Rating 1 represents a portfolio company that
is performing in a manner which significantly exceeds our
original expectations and projections;
|
|
|
|
Investment Rating 2 represents a portfolio company that,
in general, is performing above our original expectations;
|
|
|
|
Investment Rating 3 represents a portfolio company that
is generally performing in accordance with our original
expectations;
|
|
|
|
Investment Rating 4 represents a portfolio company that
is underperforming our original expectations. Investments with
such a rating require increased Main Street monitoring and
scrutiny; and
|
|
|
|
Investment Rating 5 represents a portfolio company that
is significantly underperforming. Investments with such a rating
require heightened levels of Main Street monitoring and scrutiny
and involve the recognition of unrealized depreciation on such
investment.
|
The following table shows the distribution of our portfolio
investments (excluding the investment in our affiliated
Investment Manager) on the 1 to 5 investment rating scale at
fair value as of December 31, 2008 and December 31,
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
|
|
Investments at
|
|
|
Percentage of
|
|
|
Investments at
|
|
|
Percentage of
|
|
Investment Rating
|
|
Fair Value
|
|
|
Total Portfolio
|
|
|
Fair Value
|
|
|
Total Portfolio
|
|
|
|
(Dollars in thousands)
|
|
|
1
|
|
$
|
27,523
|
|
|
|
24.9
|
%
|
|
$
|
24,619
|
|
|
|
28.0
|
%
|
2
|
|
|
23,150
|
|
|
|
21.0
|
%
|
|
|
35,068
|
|
|
|
39.8
|
%
|
3
|
|
|
53,123
|
|
|
|
48.1
|
%
|
|
|
24,034
|
|
|
|
27.3
|
%
|
4
|
|
|
6,035
|
|
|
|
5.5
|
%
|
|
|
|
|
|
|
0.0
|
%
|
5
|
|
|
500
|
|
|
|
0.5
|
%
|
|
|
4,304
|
|
|
|
4.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
110,331
|
|
|
|
100.0
|
%
|
|
$
|
88,025
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based upon our investment rating system, the weighted average
rating of our portfolio as of December 31, 2008 and 2007
was approximately 2.4 and 2.2, respectively. As of
December 31, 2008 and 2007, we had one debt investment in
each period representing 0.5% and 3.1%, respectively, of total
portfolio fair value (excluding Main Streets investment in
the Investment Manager) which was on non-accrual status.
Exit
Strategies/Refinancing
While we generally exit most investments through the refinancing
or repayment of our debt and redemption of our equity positions,
we typically assist our portfolio companies in developing and
planning exit opportunities, including any sale or merger of our
portfolio companies. We may also assist in the structure,
timing, execution and transition of the exit strategy.
54
Determination
of Net Asset Value and Valuation Process
We determine the net asset value per share of our common stock
on a quarterly basis. The net asset value per share is equal to
our total assets minus liabilities and any preferred stock
outstanding divided by the total number of shares of common
stock outstanding.
Our business plan calls for us to invest primarily in illiquid
securities issued by private companies
and/or
thinly traded public companies. These investments may be subject
to restrictions on resale and will generally have no established
trading market. As a result, we determine in good faith the fair
value of our portfolio investments pursuant to a valuation
policy in accordance with Statement of Financial Accounting
Standards (SFAS) No. 157, Fair Value
Measurements (SFAS 157) and a valuation
process approved by our Board of Directors and in accordance
with the 1940 Act. We review external events, including private
mergers, sales and acquisitions involving comparable companies,
and include these events in the valuation process. Our valuation
policy is intended to provide a consistent basis for determining
the fair value of the portfolio.
For valuation purposes, control investments are composed of
equity and debt securities for which we have a controlling
interest in the portfolio company or have the ability to
nominate a majority of the portfolio companys board of
directors. Market quotations are generally not readily available
for our control investments. As a result, we determine the fair
value of these investments using a combination of market and
income approaches. Under the market approach, we will typically
use the enterprise value methodology to determine the fair value
of these investments. The enterprise value is the fair value at
which an enterprise could be sold in a transaction between two
willing parties, other than through a forced or liquidation
sale. Typically, private companies are bought and sold based on
multiples of earnings before interest, taxes, depreciation and
amortization, or EBITDA, cash flows, net income, revenues, or in
limited cases, book value. There is no single methodology for
estimating enterprise value. For any one portfolio company,
enterprise value is generally described as a range of values
from which a single estimate of enterprise value is derived. In
estimating the enterprise value of a portfolio company, we
analyze various factors, including the portfolio companys
historical and projected financial results. We allocate the
enterprise value to investments in order of the legal priority
of the investments. We will also use the income approach to
determine the fair value of these securities, based on
projections of the discounted future free cash flows that the
portfolio company or the debt security will likely generate. The
valuation approaches for our control investments estimate the
value of the investment if we were to sell, or exit, the
investment, assuming the highest and best use of the investment
by market participants. In addition, these valuation approaches
consider the value associated with our ability to control the
capital structure of the portfolio company, as well as the
timing of a potential exit.
For valuation purposes, non-control investments are composed of
debt and equity securities for which we do not have a
controlling interest in the portfolio company, or the ability to
nominate a majority of the portfolio companys board of
directors. Market quotations for our non-control investments are
not readily available. For our non-control investments, we use
the market approach to value our equity investments and the
income approach to value our debt instruments. For non-control
debt investments, we determine the fair value primarily using a
yield approach that analyzes the discounted cash flows of
interest and principal for the debt security, as set forth in
the associated loan agreements, as well as the financial
position and credit risk of each of these portfolio investments.
Our estimate of the expected repayment date of a debt security
is generally the legal maturity date of the instrument, as we
generally intend to hold our loans to maturity. The yield
analysis considers changes in leverage levels, credit quality,
portfolio company performance and other factors. We will use the
value determined by the yield analysis as the fair value for
that security; however, because of our general intent to hold
our loans to maturity, the fair value will not exceed the face
amount of the debt security. A change in the assumptions that we
use to estimate the fair value of our debt securities using the
yield analysis could have a material impact on the determination
of fair value. If there is deterioration in credit quality or a
debt security is in workout status, we may consider other
factors in determining the fair value of a debt security,
including the value attributable to the debt security from the
enterprise value of the portfolio company or the proceeds that
would be received in a liquidation analysis.
Due to the inherent uncertainty in the valuation process, our
estimate of fair value may differ materially from the values
that would have been used had a ready market for the securities
existed. In addition, changes in the market environment,
portfolio company performance and other events that may occur
over the lives of
55
the investments could cause the gains or losses ultimately
realized on these investments to be different than the
valuations currently assigned. We determine the fair value of
each individual investment and record changes in fair value as
unrealized appreciation or depreciation.
As described below, we undertake a multi-step valuation process
each quarter in connection with determining the fair value of
our investments, with our Board of Directors ultimately and
solely responsible for overseeing, reviewing and approving, in
good faith, our estimate of the fair value of each individual
investment.
|
|
|
|
|
Our quarterly valuation process will begin with each portfolio
company or investment being initially valued by the deal team
responsible for the portfolio investment;
|
|
|
|
Preliminary valuation conclusions will then be reviewed and
discussed with senior management;
|
|
|
|
The Audit Committee of our Board of Directors will review the
preliminary valuations, and the deal team will consider and
assess, as appropriate, any changes that may be required to the
preliminary valuation to address any comments provided by the
Audit Committee;
|
|
|
|
The Board of Directors will assess the valuations and will
ultimately approve the fair value of each investment in our
portfolio in good faith; and
|
|
|
|
An independent valuation firm engaged by the Board of Directors
will perform certain mutually agreed limited procedures that we
have identified and asked them to perform on a selection of our
final portfolio company valuation conclusions.
|
Prior to the IPO, the valuations of the Funds investments
were determined by the General Partner through a multi-step
process consistent with the process discussed above except that
the review and determination of fair value was made by the
General Partner and not by the Audit Committee or the Board of
Directors.
Duff & Phelps, LLC, an independent valuation firm
(Duff & Phelps), has provided third-party
valuation consulting services to Main Street, which consisted of
certain mutually agreed limited procedures that Main Street
identified and requested Duff & Phelps to perform
(hereinafter referred to as the Procedures). During
2008, the Procedures were performed on investments in 24
portfolio companies and on the investment in the Investment
Manager comprising approximately 84% of the total portfolio
investments at fair value as of December 31, 2008, with the
Procedures performed on investments in 5 portfolio companies for
the quarter ended March 31, 2008, investments in 8
portfolio companies for the quarter ended June 30, 2008, 5
portfolio companies for the quarter ended September 30,
2008 and 6 portfolio companies and the Investment Manager for
the quarter ended December 31, 2008. Duff &
Phelps had also reviewed a total of 24 portfolio companies
comprising approximately 77% of the total portfolio investments
at fair value as of December 31, 2007. Upon completion of
the Procedures in each case, Duff & Phelps concluded
that the fair value, as determined by Main Street, of those
investments subjected to the Procedures did not appear to be
unreasonable.
Determination of fair value involves subjective judgments and
estimates. The notes to our financial statements will refer to
the uncertainty with respect to the possible effect of such
valuations, and any change in such valuations, on our financial
statements.
Competition
We compete for investments with a number of BDCs and investment
funds (including private equity funds, mezzanine funds and other
SBICs), as well as traditional financial services companies such
as commercial banks and other sources of financing. Many of the
entities that compete with us have greater financial and
managerial resources. We believe we are able to be competitive
with these entities primarily on the basis of our focus on the
underserved lower middle-market the experience and contacts of
our management team, our responsive and efficient investment
analysis and decision-making processes, our comprehensive suite
of customized financing solutions and the investment terms we
offer.
We believe that some of our competitors make senior secured
loans, junior secured loans and subordinated debt investments
with interest rates and returns that are comparable to or lower
than the rates and returns that we target. Therefore, we do not
seek to compete primarily on the interest rates and returns that
we offer to potential portfolio companies. For additional
information concerning the competitive risks we face, see
56
Risk Factors Risks Relating to Our Business
and Structure We may face increasing competition for
investment opportunities.
Employees
As of December 31, 2008, we had 17 employees, each of
whom was employed by the Investment Manager. These employees
include investment and portfolio management professionals,
operations professionals and administrative staff. In 2008, we
hired several investment professionals, as well as our Chief
Accounting Officer and General Counsel. We will hire additional
investment professionals and additional administrative
personnel, as necessary. All of our employees are located in our
Houston office.
Properties
We do not own any real estate or other physical properties
materially important to our operations. Currently, we lease
office space in Houston, Texas for our corporate headquarters.
Legal
Proceedings
Although we may, from time to time, be involved in litigation
arising out of our operations in the normal course of business
or otherwise, we are currently not a party to any pending
material legal proceedings.
PORTFOLIO
COMPANIES
The following table sets forth certain unaudited information as
of December 31, 2008, for each portfolio company in which
we had a debt or equity investment. Other than these
investments, our only formal relationships with our portfolio
companies are the managerial assistance ancillary to our
investments and the board observer or participation rights we
may receive.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of
|
|
|
|
|
|
|
|
Name and Address
|
|
Nature of
|
|
Title of Securities
|
|
Fully Diluted
|
|
|
Cost of
|
|
|
Fair Value
|
|
of Portfolio Company
|
|
Principal Business
|
|
Held by Us
|
|
Equity Held
|
|
|
Investment
|
|
|
of Investment
|
|
|
Advantage Millwork Company, Inc.
|
|
Manufacturer/Distributor
|
|
12% Secured Debt
|
|
|
|
|
|
|
2,955,442
|
|
|
|
2,955,442
|
|
10510 Okanella Street, Suite 200
|
|
of Wood Doors
|
|
Warrants
|
|
|
12.2
|
%
|
|
|
97,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Houston, TX 77041
|
|
|
|
|
|
|
|
|
|
|
3,053,250
|
|
|
|
2,955,442
|
|
American Sensor Technologies, Inc.
|
|
Manufacturer of Commercial/
|
|
Prime plus 0.5% Secured Debt
|
|
|
|
|
|
|
3,800,000
|
|
|
|
3,800,000
|
|
450 Clark Drive
|
|
Industrial Sensors
|
|
Warrants
|
|
|
20.0
|
%
|
|
|
50,000
|
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mt. Olive, NJ 07828
|
|
|
|
|
|
|
|
|
|
|
3,850,000
|
|
|
|
4,050,000
|
|
Café Brazil, LLC
|
|
Casual Restaurant
|
|
12% Secured Debt
|
|
|
|
|
|
|
2,728,113
|
|
|
|
2,750,000
|
|
202 West Main Street Suite 100
|
|
Group
|
|
LLC Interests
|
|
|
42.3
|
%
|
|
|
41,837
|
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allen, TX 75002
|
|
|
|
|
|
|
|
|
|
|
2,769,950
|
|
|
|
3,750,000
|
|
Carlton Global Resources, LLC
|
|
Processor of
|
|
13% PIK Secured Debt
|
|
|
|
|
|
|
4,655,836
|
|
|
|
|
|
20021 Valley Blvd, Suite B
|
|
Industrial Minerals
|
|
LLC Interests
|
|
|
8.5
|
%
|
|
|
400,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tehachapi, CA 93561
|
|
|
|
|
|
|
|
|
|
|
5,055,836
|
|
|
|
|
|
CBT Nuggets, LLC
|
|
Produces and Sells
|
|
14% Secured Debt
|
|
|
|
|
|
|
1,642,518
|
|
|
|
1,680,000
|
|
44 Club Road Suite 150
|
|
IT Certification
|
|
10% Secured Debt
|
|
|
|
|
|
|
150,000
|
|
|
|
150,000
|
|
Eugene, OR 97401
|
|
Training Videos
|
|
LLC Interests
|
|
|
29.1
|
%
|
|
|
432,000
|
|
|
|
1,625,000
|
|
|
|
|
|
Warrants
|
|
|
10.5
|
%
|
|
|
72,000
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,296,518
|
|
|
|
3,955,000
|
|
Ceres Management, LLC (Lambs)
|
|
Aftermarket Automotive
|
|
14% Secured Debt
|
|
|
|
|
|
|
2,372,601
|
|
|
|
2,372,601
|
|
11675 Jollyville Road, Suite 300
|
|
Services Chain
|
|
LLC Interests
|
|
|
42.0
|
%
|
|
|
1,200,000
|
|
|
|
1,300,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Austin, TX 78759
|
|
|
|
|
|
|
|
|
|
|
3,572,601
|
|
|
|
3,672,601
|
|
California Healthcare Medical Billing, Inc.
|
|
Healthcare Services
|
|
12% Secured Debt
|
|
|
|
|
|
|
1,141,706
|
|
|
|
1,141,706
|
|
1121 E. Washington Ave.
|
|
|
|
Common Stock
|
|
|
6.0
|
%
|
|
|
390,000
|
|
|
|
390,000
|
|
Escondido, CA 92025
|
|
|
|
Warrants
|
|
|
12.0
|
%
|
|
|
240,000
|
|
|
|
240,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,771,706
|
|
|
|
1,771,706
|
|
Condit Exhibits, LLC
|
|
Tradeshow Exhibits/
|
|
13% current / 5% PIK Secured
|
|
|
|
|
|
|
2,273,194
|
|
|
|
2,273,194
|
|
500 West Tennessee
|
|
Custom Displays
|
|
Debt LLC Interests
|
|
|
28.1
|
%
|
|
|
300,000
|
|
|
|
300,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denver, CO 80223
|
|
|
|
|
|
|
|
|
|
|
2,573,194
|
|
|
|
2,573,194
|
|
East Teak Fine Hardwoods, Inc.
|
|
Hardwood Products
|
|
Common Stock
|
|
|
3.3
|
%
|
|
|
130,000
|
|
|
|
490,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1106 Drake Road
Donalds, SC 29638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gulf Manufacturing, LLC
|
|
Industrial Metal
|
|
Prime plus 1% Secured Debt
|
|
|
|
|
|
|
1,190,764
|
|
|
|
1,200,000
|
|
1221 Indiana St.
|
|
Fabrication
|
|
13% Secured Debt
|
|
|
|
|
|
|
1,747,777
|
|
|
|
1,880,000
|
|
Humble, TX 77396
|
|
|
|
LLC Interests
|
|
|
18.6
|
%
|
|
|
472,000
|
|
|
|
1,100,000
|
|
|
|
|
|
Warrants
|
|
|
8.4
|
%
|
|
|
160,000
|
|
|
|
550,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,570,541
|
|
|
|
4,730,000
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of
|
|
|
|
|
|
|
|
Name and Address
|
|
Nature of
|
|
Title of Securities
|
|
Fully Diluted
|
|
|
Cost of
|
|
|
Fair Value
|
|
of Portfolio Company
|
|
Principal Business
|
|
Held by Us
|
|
Equity Held
|
|
|
Investment
|
|
|
of Investment
|
|
|
Hawthorne Customs &
Dispatch Services, LLC
|
|
Transportation/
|
|
13% Secured Debt
|
|
|
|
|
|
|
1,171,988
|
|
|
|
1,171,988
|
|
9370 Wallisville Road
|
|
Logistics
|
|
LLC Interests
|
|
|
27.8
|
%
|
|
|
375,000
|
|
|
|
435,000
|
|
Houston, TX 77013
|
|
|
|
Warrants
|
|
|
16.5
|
%
|
|
|
37,500
|
|
|
|
230,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,584,488
|
|
|
|
1,836,988
|
|
Hayden Acquisition, LLC
|
|
Manufacturer of
|
|
8% Secured Debt
|
|
|
|
|
|
|
1,781,303
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7801 West Tangerine Rd.
Rillito, AZ 85654
|
|
Utility Structures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Houston Plating & Coatings, LLC
|
|
Plating & Industrial
|
|
Prime plus 2% Secured Debt
|
|
|
|
|
|
|
300,000
|
|
|
|
300,000
|
|
1315 Georgia St.
|
|
Coating Services
|
|
LLC Interests
|
|
|
11.1
|
%
|
|
|
210,000
|
|
|
|
2,750,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South Houston, TX 77587
|
|
|
|
|
|
|
|
|
|
|
510,000
|
|
|
|
3,050,000
|
|
Hydratec Holdings, LLC
|
|
Agricultural Services
|
|
12.5% Secured Debt
|
|
|
|
|
|
|
5,311,329
|
|
|
|
5,311,329
|
|
325 Road 192
|
|
|
|
Prime plus 1% Secured Debt
|
|
|
|
|
|
|
1,579,911
|
|
|
|
1,579,911
|
|
Delano, CA 93215
|
|
|
|
LLC Interests
|
|
|
60.0
|
%
|
|
|
1,800,000
|
|
|
|
2,050,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,691,240
|
|
|
|
8,941,240
|
|
Jensen Jewelers of Idaho, LLC
|
|
Retail Jewelry
|
|
Prime Plus 2% Secured Debt
|
|
|
|
|
|
|
1,030,957
|
|
|
|
1,044,000
|
|
130 2nd Avenue North
|
|
|
|
13% current / 6% PIK
|
|
|
|
|
|
|
986,980
|
|
|
|
1,004,591
|
|
Twin Falls, ID 83301
|
|
|
|
Secured Debt LLC Interests
|
|
|
24.3
|
%
|
|
|
376,000
|
|
|
|
380,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,393,937
|
|
|
|
2,428,591
|
|
KBK Industries, LLC
|
|
Specialty Manufacturer
|
|
14% Secured Debt
|
|
|
|
|
|
|
3,787,758
|
|
|
|
3,937,500
|
|
East Highway 96
|
|
of Oilfield and
|
|
8% Secured Debt
|
|
|
|
|
|
|
468,750
|
|
|
|
468,750
|
|
Rush Center, KS 67575
|
|
Industrial Products
|
|
8% Secured Debt
|
|
|
|
|
|
|
450,000
|
|
|
|
450,000
|
|
|
|
|
|
LLC Interests
|
|
|
14.5
|
%
|
|
|
187,500
|
|
|
|
775,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,894,008
|
|
|
|
5,631,250
|
|
Laurus Healthcare, LP
|
|
Healthcare Facilities
|
|
13% Secured Debt
|
|
|
|
|
|
|
2,259,664
|
|
|
|
2,275,000
|
|
10000 Memorial Drive, Suite 540
|
|
|
|
Warrants
|
|
|
17.5
|
%
|
|
|
105,000
|
|
|
|
2,500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Houston, TX 77056
|
|
|
|
|
|
|
|
|
|
|
2,364,664
|
|
|
|
4,775,000
|
|
NAPCO Precast, LLC
|
|
Precast Concrete
|
|
18% Secured Debt
|
|
|
|
|
|
|
6,348,011
|
|
|
|
6,461,538
|
|
6949 Low Bid Lane
|
|
Manufacturing
|
|
Prime Plus 2% Secured Debt
|
|
|
|
|
|
|
3,660,945
|
|
|
|
3,692,308
|
|
San Antonio, TX 78250
|
|
|
|
LLC Interests
|
|
|
36.1
|
%
|
|
|
2,000,000
|
|
|
|
5,100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,008,956
|
|
|
|
15,253,846
|
|
National Trench Safety, LLC
|
|
Trench & Traffic
|
|
10% PIK Debt
|
|
|
|
|
|
|
404,256
|
|
|
|
404,256
|
|
15955 West Hardy Road, Suite 100
|
|
Safety Equipment
|
|
LLC Interests
|
|
|
11.7
|
%
|
|
|
1,792,308
|
|
|
|
1,792,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Houston, TX 77060
|
|
|
|
|
|
|
|
|
|
|
2,196,564
|
|
|
|
2,196,564
|
|
OMi Holdings, Inc.
|
|
Manufacturer of
|
|
12% Secured Debt
|
|
|
|
|
|
|
6,603,400
|
|
|
|
6,603,400
|
|
1515 E. I-30 Service Road
|
|
Overhead Cranes
|
|
Common Stock
|
|
|
28.8
|
%
|
|
|
900,000
|
|
|
|
570,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royse City, TX 75189
|
|
|
|
|
|
|
|
|
|
|
7,503,400
|
|
|
|
7,173,400
|
|
Pulse Systems, LLC
|
|
Manufacturer of
|
|
14% Secured Debt
|
|
|
|
|
|
|
1,819,464
|
|
|
|
1,831,274
|
|
4070 G Nelson Avenue
|
|
Components for
|
|
Warrants
|
|
|
7.4
|
%
|
|
|
132,856
|
|
|
|
450,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Concord, CA 94520
|
|
Medical Devices
|
|
|
|
|
|
|
|
|
1,952,320
|
|
|
|
2,281,274
|
|
Quest Design & Production, LLC
|
|
Design and Fabrication
|
|
10% Secured Debt
|
|
|
|
|
|
|
465,060
|
|
|
|
600,000
|
|
10323 Greenland Ct.
|
|
of Custom Display
|
|
0% Secured Debt
|
|
|
|
|
|
|
2,000,000
|
|
|
|
1,400,000
|
|
Stafford, TX 77477
|
|
Systems
|
|
Warrants
|
|
|
40.0
|
%
|
|
|
1,595,858
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
20.0
|
%
|
|
|
40,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,100,918
|
|
|
|
2,000,000
|
|
Schneider Sales Management, LLC
|
|
Sales Consulting
|
|
13% Secured Debt
|
|
|
|
|
|
|
1,909,972
|
|
|
|
1,909,972
|
|
1925 Winchester Blvd. #204
|
|
and Training
|
|
Warrants
|
|
|
12.0
|
%
|
|
|
45,000
|
|
|
|
45,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greenwood Village, CO 80111
|
|
|
|
|
|
|
|
|
|
|
1,954,972
|
|
|
|
1,954,972
|
|
Support Systems Homes, Inc.
|
|
Manages Substance
|
|
15% Secured Debt
|
|
|
|
|
|
|
226,589
|
|
|
|
226,589
|
|
1925 Winchester Blvd. #204
Campbell, CA 95008
|
|
Abuse Treatment Centers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technical Innovations, LLC
|
|
Manufacturer of Specialty
|
|
7% Secured Debt
|
|
|
|
|
|
|
409,297
|
|
|
|
409,297
|
|
20714 Highway 36
|
|
Cutting Tools and Punches
|
|
13.5% Secured Debt
|
|
|
|
|
|
|
3,698,216
|
|
|
|
3,750,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brazoria, TX 77422
|
|
|
|
|
|
|
|
|
|
|
4,107,513
|
|
|
|
4,159,297
|
|
Universal Scaffolding & Equipment, LLC
|
|
Manufacturer of Scaffolding
|
|
Prime plus 1% Secured Debt
|
|
|
|
|
|
|
875,072
|
|
|
|
875,072
|
|
973 S. Third St. Memphis,
|
|
and Shoring Equipment
|
|
13% current / 5% PIK Secured
|
|
|
|
|
|
|
3,311,508
|
|
|
|
3,160,000
|
|
TN 38106
|
|
|
|
Debt LLC Interests
|
|
|
18.4
|
%
|
|
|
992,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,178,643
|
|
|
|
4,035,072
|
|
Uvalco Supply, LLC
|
|
Farm and Ranch
|
|
LLC Interests
|
|
|
39.6
|
%
|
|
|
905,743
|
|
|
|
1,575,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2521 E Main St.
Uvalde, TX 78801
|
|
Supply
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vision Interests, Inc.
|
|
Manufacturer/
|
|
13% Secured Debt
|
|
|
|
|
|
|
3,579,117
|
|
|
|
3,579,117
|
|
6630 Arroyo Springs St. Suite 600
|
|
Installer of Commercial
|
|
Common Stock
|
|
|
8.9
|
%
|
|
|
372,000
|
|
|
|
420,000
|
|
Las Vegas, NV 89113
|
|
Signage
|
|
Warrants
|
|
|
11.2
|
%
|
|
|
160,000
|
|
|
|
420,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,111,117
|
|
|
|
4,419,117
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of
|
|
|
|
|
|
|
|
Name and Address
|
|
Nature of
|
|
Title of Securities
|
|
Fully Diluted
|
|
|
Cost of
|
|
|
Fair Value
|
|
of Portfolio Company
|
|
Principal Business
|
|
Held by Us
|
|
Equity Held
|
|
|
Investment
|
|
|
of Investment
|
|
|
Walden Smokey Point, Inc.
|
|
Specialty Transportation/
|
|
14% current / 4% PIK Secured
|
|
|
|
|
|
|
4,704,533
|
|
|
|
4,704,533
|
|
7615 Bryonwood Dr.
|
|
Logistics
|
|
Debt Common Stock
|
|
|
7.6
|
%
|
|
|
600,000
|
|
|
|
600,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arlington, WA 98223
|
|
|
|
|
|
|
|
|
|
|
5,304,533
|
|
|
|
5,304,533
|
|
WorldCall, Inc.
|
|
Telecommunication/
|
|
13% Secured Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
1250 Capital of Texas Hwy., Bldg. 2, Suite 235
|
|
Information Services
|
|
Common Stock
|
|
|
9.9
|
%
|
|
|
631,199
|
|
|
|
640,000
|
|
Austin, TX 78746
|
|
|
|
|
|
|
|
|
|
|
296,631
|
|
|
|
382,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
927,830
|
|
|
|
1,022,837
|
|
Zieglers NYPD, LLC
|
|
Restaurant
|
|
Prime Plus 2% Secured Debt
|
|
|
|
|
|
|
594,239
|
|
|
|
594,239
|
|
13901 North 73rd St., #219
|
|
|
|
13% current / 5% PIK Secured
|
|
|
|
|
|
|
2,663,437
|
|
|
|
2,663,437
|
|
Scottsdale, AZ 85260
|
|
|
|
Debt Warrants
|
|
|
28.6
|
%
|
|
|
360,000
|
|
|
|
360,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,617,676
|
|
|
|
3,617,676
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
104,960,011
|
|
|
|
110,331,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
of Portfolio Companies
Set forth below is a brief description of each of our current
portfolio companies as of December 31, 2008.
|
|
|
|
|
Advantage Millwork Company, Inc. is a premier designer
and manufacturer of high quality wood, decorative metal and
wrought iron entry doors.
|
|
|
|
American Sensor Technologies, Inc. designs, develops,
manufactures and markets
state-of-the-art,
high performance commercial and industrial sensors.
|
|
|
|
Café Brazil, LLC owns and operates nine full service
restaurant/coffee houses in the Dallas/Fort Worth Metroplex.
|
|
|
|
Carlton Global Resources, LLC is a producer and processor
of various industrial minerals for use in the manufacturing,
construction and building materials industry.
|
|
|
|
CBT Nuggets, LLC produces and sells original content IT
certification training videos. CBT Nuggets, LLCs training
videos provide comprehensive training for certification exams
from
Microsoft®,
CompTIA®,
Cisco®,
Citrix®
and many other professional certification vendors.
|
|
|
|
Ceres Management, LLC (d/b/a Lambs Tire and Automotive
Centers) is a leading operator of Goodyear tire retail and
automotive repair centers in and around Austin, Texas, with
fifteen operating locations.
|
|
|
|
California Healthcare Medical Billing, Inc. provides
outsourced billing, revenue cycle management, business services,
IT and Electronic Health Record (EHR) technology to physician
practices and clinics.
|
|
|
|
Condit Exhibits, LLC is a Denver, Colorado based
designer, manufacturer and manager of trade show exhibits and
permanent displays.
|
|
|
|
East Teak Fine Hardwoods, Inc. is a leading provider of
teak lumber, exotic hardwoods and hardwood products.
|
|
|
|
Gulf Manufacturing, LLC manufactures, modifies, and
distributes specialty flanges, fittings, rings, plates, spacers,
and other fabricated metal products utilized primarily in piping
applications.
|
|
|
|
Hawthorne Customs & Dispatch Services, LLC
provides one stop logistics services to its
customers in order to facilitate the import and export of
various products to and from the United States.
|
|
|
|
Hayden Acquisition, LLC is a manufacturer and supplier of
precast concrete underground utility structures to the
construction industry.
|
|
|
|
Houston Plating & Coatings, LLC is a provider
of nickel plating and industrial coating services primarily
serving the oil field services industry.
|
|
|
|
Hydratec Holdings, LLC is engaged in the design, sale and
installation of agricultural micro-irrigation products/systems
to farmers in the San Joaquin valley in central California.
|
|
|
|
Jensen Jewelers of Idaho, LLC is the largest privately
owned jewelry chain in the Rocky Mountains with 14 stores in
5 states, including Idaho, Montana, Nevada, South Dakota
and Wyoming.
|
59
|
|
|
|
|
KBK Industries, LLC is a manufacturer of standard and
customized fiberglass tanks and related products primarily for
use in oil and gas production, chemical production and
agriculture applications.
|
|
|
|
Laurus Healthcare, LP develops and manages single or
multi-specialty health care centers through physician
partnerships that provide various surgical, diagnostic and
interventional services.
|
|
|
|
NAPCO Precast, LLC designs, manufactures, transports and
erects precast and pre-stressed concrete products primarily for
the non-residential/commercial construction industry.
|
|
|
|
National Trench Safety, LLC engages in the rental and
sale of underground equipment and trench safety products,
including trench shielding, trench shoring, road plates, pipe
lasers, pipe plugs and confined space equipment.
|
|
|
|
OMi Holdings, Inc. designs, manufactures, and installs
overhead material handling equipment including bridge cranes,
runway systems, monorails, jib cranes and hoists.
|
|
|
|
Pulse Systems, LLC manufactures a wide variety of
components used in medical devices for minimally-invasive
surgery, primarily in the endovascular field.
|
|
|
|
Quest Design & Production, LLC is engaged in
the design, fabrication and installation of graphic presentation
materials and associated custom display fixtures used in sales
and information center environments.
|
|
|
|
Schneider Sales Management, LLC is a leading publisher of
proprietary sales training materials and provider of
sales-management consulting services for financial institutions.
|
|
|
|
Support Systems Homes, Inc. operates drug and alcohol
rehabilitation centers offering a wide range of substance abuse
treatment programs for recovery from addictions.
|
|
|
|
Technical Innovations, LLC designs and manufactures
manual, semiautomatic, pneumatic and computer numerically
controlled machines and tools used primarily by medical device
manufacturers to place access holes in catheters.
|
|
|
|
Universal Scaffolding & Equipment, LLC is in
the business of manufacturing, sourcing and selling scaffolding,
forming and shoring products, and related custom fabricated
products for the commercial and industrial construction industry.
|
|
|
|
Uvalco Supply, LLC is a leading provider of farm and
ranch supplies to ranch owners and farmers, as well as a leading
provider of design, fabrication and erection services for metal
buildings throughout South Texas.
|
|
|
|
Vision Interests, Inc. is a full service sign company
that designs, manufactures, installs and services interior and
exterior signage for a wide range of customers.
|
|
|
|
Walden Smokey Point, Inc. is an established leader in a
niche sector of the trucking and logistics industry.
|
|
|
|
WorldCall, Inc. is a holding company which owns both
regulated and unregulated communications and information service
providers.
|
|
|
|
Zieglers NYPD, LLC is a New York- themed Pizzeria
and Italian restaurant with locations across the Phoenix metro
area.
|
60
MANAGEMENT
Our business and affairs are managed under the direction of our
Board of Directors. Our Board of Directors appoints our
officers, who serve at the discretion of the Board of Directors.
The responsibilities of the Board of Directors include, among
other things, the oversight of our investment activities, the
quarterly valuation of our assets, oversight of our financing
arrangements and corporate governance activities. The Board of
Directors has an Audit Committee, Compensation Committee, and
Nominating and Corporate Governance Committee, and may establish
additional committees from time to time as necessary.
Board of
Directors and Executive Officers
Our Board of Directors consist of six members, four of whom are
classified under applicable Nasdaq listing standards as
independent directors and under
Section 2(a)(19) of the 1940 Act as
non-interested persons. Pursuant to our articles of
incorporation, each member of our Board of Directors serves a
one year term, with each current director serving until the 2009
annual meeting of stockholders and until his respective
successor is duly qualified and elected. Our articles of
incorporation give our Board of Directors sole authority to
appoint directors to fill vacancies that are created either
through an increase in the number of directors or due to the
resignation, removal or death of any director.
Directors
Information regarding our current Board of Directors is set
forth below as of April 30, 2009. We have divided the
directors into two groups independent directors and
interested directors. Interested directors are interested
persons of MSCC as defined in Section 2(a)(19) of the
1940 Act. The address for each director is
c/o Main
Street Capital Corporation, 1300 Post Oak Boulevard,
Suite 800, Houston, Texas 77056.
Independent
Directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
|
Expiration
|
|
Name
|
|
Age
|
|
|
Since
|
|
|
of Term
|
|
|
Michael Appling Jr.
|
|
|
42
|
|
|
|
2007
|
|
|
|
2009
|
|
Joseph E. Canon
|
|
|
67
|
|
|
|
2007
|
|
|
|
2009
|
|
Arthur L. French
|
|
|
68
|
|
|
|
2007
|
|
|
|
2009
|
|
William D. Gutermuth
|
|
|
57
|
|
|
|
2007
|
|
|
|
2009
|
|
Interested
Directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
Expiration
|
Name
|
|
Age
|
|
Since
|
|
of Term
|
|
Vincent D. Foster
|
|
|
52
|
|
|
|
2007
|
|
|
|
2009
|
|
Todd A. Reppert
|
|
|
39
|
|
|
|
2007
|
|
|
|
2009
|
|
61
Executive
Officers
The following persons serve as our executive officers in the
following capacities (ages as of April 30, 2009):
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position(s) Held with the Company
|
|
Vincent D. Foster
|
|
|
52
|
|
|
Chairman of the Board and Chief Executive Officer
|
Todd A. Reppert
|
|
|
39
|
|
|
Director, President and Chief Financial Officer
|
Rodger A. Stout
|
|
|
57
|
|
|
Senior Vice President-Finance and Administration, Chief
Compliance Officer and Treasurer
|
Jason B. Beauvais
|
|
|
34
|
|
|
Vice President, General Counsel and Secretary
|
Michael S. Galvan
|
|
|
40
|
|
|
Vice President and Chief Accounting Officer
|
Curtis L. Hartman
|
|
|
36
|
|
|
Senior Vice President
|
Dwayne L. Hyzak
|
|
|
36
|
|
|
Senior Vice President
|
David L. Magdol
|
|
|
38
|
|
|
Senior Vice President
|
The address for each executive officer is
c/o Main
Street Capital Corporation, 1300 Post Oak Boulevard,
Suite 800, Houston, Texas 77056.
Biographical
Information
Independent
Directors
Michael Appling Jr. has been a member of our Board of
Directors since July 2007. Mr. Appling is also the
President and Chief Executive Officer of TNT Crane &
Rigging Inc., a privately held full service crane and rigging
operator. From July 2002 through August 2007, he was the
Executive Vice President and Chief Financial Officer of XServ,
Inc., a large private equity-funded, international industrial
services and rental company. Mr. Appling has also held the
position of CEO and President for United Scaffolding, Inc., an
XServ, Inc. operating subsidiary. In February 2007, XServ, Inc.
was sold to The Brock Group, a private industrial services
company headquartered in Texas. From March 2000 to June 2002,
Mr. Appling served as the Chief Financial Officer of
CheMatch.com, an online commodities trading forum. ChemConnect,
Inc., a venture-backed independent trading exchange, acquired
CheMatch.com in January 2002. From June 1999 to March 2000,
Mr. Appling was Vice President and Chief Financial Officer
of American Eco Corporation, a publicly traded, international
fabrication, construction and maintenance provider to the
energy, pulp and paper and power industries. Mr. Appling
worked for ITEQ, Inc., a publicly traded, international
fabrication and services company from September 1997 to May
1999, first as a Director of Corporate Development and then as
Vice President, Finance and Accounting. From July 1991 to
September 1997, Mr. Appling worked at Arthur Andersen LLP,
where he practiced as a certified public accountant.
Joseph E. Canon has been a member of our Board of
Directors since July 2007. Since 1982, Mr. Canon has been
the Executive Vice President and Executive Director, and a
member of the Board of Directors, of Dodge Jones Foundation, a
private charitable foundation located in Abilene, Texas. Prior
to 1982, Mr. Canon was an Executive Vice President of the
First National Bank of Abilene. From 1974 to 1982, he was the
Vice President and Trust Officer with the First National
Bank of Abilene. Mr. Canon currently serves on the Board of
Directors of First Financial Bankshares, Inc. (NASDAQ-GM:FFIN),
a financial holding company headquartered in Abilene, Texas.
Mr. Canon also serves on the Board of Directors for several
bank and trust/asset management subsidiaries of First Financial
Bankshares, Inc. He has also served on the Board of Directors of
various other organizations including the Abilene Convention and
Visitors Bureau, Abilene Chamber of Commerce, Conference of
Southwest Foundations, City of Abilene Tax Increment District,
West Central Texas Municipal Water District and the John G. and
Marie Stella Kenedy Memorial Foundation.
Arthur L. French has been a member of our Board of
Directors since July 2007. From September 2003 through March
2007, Mr. French was a member of the Advisory Board of the
Investment Manager and limited partner of the Fund (both of
which are now subsidiaries of Main Street). Mr. French
began his private investment activities in January 2000; he has
served as a director of FabTech Industries, a steel fabricator,
62
since November 2000, and as a director of Rawson, Inc., a
distributor of industrial instrumentation products, since May
2003. Mr. French served as Chairman and Chief Executive
Officer of Metals USA Inc. from
1996-1999,
where he managed the process of founders acquisition, assembled
the management team and took the company through a successful
IPO in July 1997. From
1989-1996,
he served as Executive Vice President and Director of Keystone
International, Inc. After serving as a helicopter pilot in the
United States Army, Captain-Corps of Engineers from
1963-1966,
Mr. French began his career as a Sales Engineer for Fisher
Controls International, Inc., in 1966. During his
23-year
career at Fisher Controls, from
1966-1989,
Mr. French held various titles, and ended his career at
Fisher Controls as President and Chief Operating Officer.
William D. Gutermuth has been a member of our Board of
Directors since July 2007. Since 1986, Mr. Gutermuth has
been a partner in the law firm of Bracewell & Giuliani
LLP, specializing in the practice of corporate and securities
law. From 1999 until 2005, Mr. Gutermuth was the Chair of
Bracewell & Giulianis Corporate and Securities
Section. Mr. Gutermuth is a published author and frequent
lecturer on topics relating to corporate governance and
enterprise risk management. He has been recognized by
independent evaluation organizations as One of the Best
Lawyers in America-Corporate M&A and Securities Law
and as a Texas Super Lawyer. In addition,
Mr. Gutermuth serves as a director of the Texas TriCities
Chapter of the National Association of Corporate Directors.
Interested
Directors
Vincent D. Foster has been Chairman of our Board of
Directors since April 2007. He is our Chief Executive Officer
and a member of our investment committee. Since 2002,
Mr. Foster has been a senior managing director of the
General Partner and the Investment Manager (both of which are
now subsidiaries of Main Street). He has also been the senior
managing director of the general partner for MSC II, an SBIC he
co-founded, since January 2006. From 2000 to 2002,
Mr. Foster was the senior managing director of the
predecessor entity of the Fund. Prior to that, Mr. Foster
co-founded Main Street Merchant Partners, a merchant-banking
firm. He has served as director of U.S. Concrete, Inc.
(NASDAQ-GM: RMIX) since 1999. He also serves as a director of
Quanta Services, Inc. (NYSE: PWR), an electrical and
telecommunications contracting company, Carriage Services, Inc.
(NYSE: CSV), a death-care company, and Team, Inc. (NASDAQ-GS:
TISI), a provider of specialty industrial services. In addition,
Mr. Foster serves as a director, officer and founder of the
Texas TriCities Chapter of the National Association of Corporate
Directors. Prior to his private investment activities,
Mr. Foster was a partner of Andersen Worldwide and Arthur
Andersen LLP from
1988-1997.
Mr. Foster was the director of Andersens Corporate
Finance and Mergers and Acquisitions practice for the Southwest
United States and specialized in working with companies involved
in consolidating industries.
Todd A. Reppert has been a member of our Board of
Directors since April 2007. He is our President and Chief
Financial Officer and is a member of our investment committee.
Since 2002, he has been a senior managing director of the
General Partner and the Investment Manager (both of which are
now subsidiaries of Main Street). Mr. Reppert has been a
senior managing director of the general partner for MSC II, an
SBIC he co-founded, since January 2006. From 2000 to 2002,
Mr. Reppert was a senior managing director of the
predecessor entity of the Fund. Prior to that, he was a
principal of Sterling City Capital, LLC, a private investment
group focused on small to middle-market companies. Prior to
joining Sterling City Capital in 1997, Mr. Reppert was with
Arthur Andersen LLP. At Arthur Andersen LLP, he assisted in
several industry consolidation initiatives, as well as numerous
corporate finance and merger/acquisition initiatives.
Non-Director
Executive Officers
Rodger A. Stout serves as our Chief Compliance Officer,
Senior Vice President-Finance and Administration and Treasurer.
Mr. Stout has been the chief financial officer of the
General Partner, the Investment Manager and the general partner
of MSC II, an SBIC, since 2006. From 2000 to 2006,
Mr. Stout was senior vice president and chief financial
officer for FabTech Industries, Inc., a consolidation of nine
steel fabricators. From 1985 to 2000, he was a senior financial
executive for Jerold B. Katz Interests. He held numerous
positions over his
15-year
tenure with this national scope financial services conglomerate.
Those positions
63
included director, executive vice president, senior financial
officer and investment officer. Prior to 1985, Mr. Stout
was an international tax executive in the oil and gas service
industry.
Jason B. Beauvais serves as our Vice President, General
Counsel and Secretary. Prior to joining us in June 2008,
Mr. Beauvais was an attorney with Occidental Petroleum
Corporation, an international oil and gas exploration and
production company, since August 2006. From October 2002 to
August 2006, he was an associate in the Corporate and Securities
section of Baker Botts L.L.P., where he primarily counseled
companies in public issuances and private placements of debt and
equity and handled a wide range of general corporate and
securities matters as well as mergers and acquisitions.
Mr. Beauvais has been licensed to practice law in Texas
since 2002.
Michael S. Galvan serves as our Vice President and Chief
Accounting Officer. Prior to joining us in February 2008,
Mr. Galvan was senior manager of financial operations with
Direct Energy, a retail gas and electricity service provider
since October 2006. From September 2005 to October 2006, he was
a senior audit manager with Malone & Bailey, PC, where
he managed and coordinated audits of publicly traded companies
and other companies. From March 2003 to September 2005,
Mr. Galvan was Director of Bankruptcy Coordination at Enron
Corporation. Prior to March 2003, he served in other executive
positions at various Enron affiliates.
Curtis L. Hartman serves as one of our Senior Vice
Presidents. Mr. Hartman has been a managing director of the
General Partner and the Investment Manager since 2002 and a
managing director of the general partner for MSC II since
January 2006. From 2000 to 2002, he was a director of the
predecessor entity of the Fund. From 1999 to 2000,
Mr. Hartman was an investment adviser for Sterling City
Capital, LLC. Concurrently with joining Sterling City Capital,
he joined United Glass Corporation, a Sterling City Capital
portfolio company, as director of corporate development. Prior
to joining Sterling City Capital, Mr. Hartman was a manager
with PricewaterhouseCoopers LLP, in its M&A/Transaction
Services group. Prior to that, he was employed as a senior
auditor by Deloitte & Touche LLP.
Dwayne L. Hyzak serves as one of our Senior Vice
Presidents and is a member of our investment committee.
Mr. Hyzak has been a managing director of the General
Partner and the Investment Manager since 2002. He has also been
a managing director of the general partner for MSC II since
January 2006. From 2000 to 2002, Mr. Hyzak was a director
of integration with Quanta Services, Inc. (NYSE: PWR), an
electrical and telecommunications contracting company, where he
was principally focused on the companys mergers and
acquisitions and corporate finance activities. Prior to joining
Quanta Services, Inc., he was a manager with Arthur Andersen LLP
in its Transaction Advisory Services group.
David L. Magdol serves as one of our Senior Vice
Presidents. Mr. Magdol has been a managing director of the
General Partner and the Investment Manager since 2002 and a
managing director of the general partner for MSC II since
January 2006. From 2000 to 2002, Mr. Magdol was a vice
president in the Investment Banking Group of Lazard
Freres & Co. LLC. From 1996 to 2000, Mr. Magdol
served as a vice president of McMullen Group, a private equity
investment firm capitalized by Dr. John J. McMullen. From
1993 to 1995, Mr. Magdol worked in the Structured Finance
Services Group of Chemical Bank as a management associate.
Meetings
of the Board of Directors and Committees
Our Board of Directors met six times and acted by unanimous
written consent eight times during 2008. Our Board of Directors
has established an audit committee, a compensation committee and
a nominating and corporate governance committee. Each of the
audit committee, compensation committee and nominating and
corporate governance committee operates pursuant to a charter,
each of which is available under Governance on the
Investor Relations section of our website at
www.mainstcapital.com, and is also available in print to
any stockholder who requests a copy in writing to Main Street
Capital Corporation, Corporate Secretarys Office, 1300
Post Oak Blvd., Suite 800, Houston, Texas 77056.
Our Board of Directors approved the designation of Arthur L.
French as lead director to preside at all executive sessions of
non-management directors. In the lead directors absence,
the remaining non-management directors may appoint a presiding
director by majority vote. The non-management directors meet in
executive
64
session without management on a regular basis. Stockholders or
other interested persons may send written communications to
Arthur L. French, addressed to Lead Director,
c/o Main
Street Capital Corporation, Corporate Secretarys Office,
1300 Post Oak Blvd., Suite 800, Houston, Texas 77056.
Audit
Committee
The Audit Committee is responsible for selecting, engaging and
discharging our independent accountants, reviewing the plans,
scope and results of the audit engagement with our independent
accountants, approving professional services provided by our
independent accountants (as well as the compensation for those
services), reviewing the independence of our independent
accountants and reviewing the adequacy of our internal control
over financial reporting. In addition, the Audit Committee is
responsible for assisting our Board of Directors, in connection
with its review and approval of the determination of, the fair
value of our debt and equity securities that are not publicly
traded or for which current market values are not readily
available. Our Board of Directors has determined that
Mr. Appling is an Audit Committee financial
expert as defined by the SEC and an independent director.
Messrs. Canon and French are the other members of the Audit
Committee. During the year ended December 31, 2008, the
Audit Committee met five times and acted by unanimous written
consent once.
Compensation
Committee
The Compensation Committee determines the compensation for our
executive officers and the amount of salary, bonus and
stock-based compensation to be included in the compensation
package for each of our executive officers. The actions of the
Compensation Committee are generally reviewed and ratified by
the entire Board of Directors, excluding the employee directors.
The members of the Compensation Committee are
Messrs. Canon, French and Gutermuth. During the year ended
December 31, 2008, the Compensation Committee met five
times and acted by unanimous written consent once.
Nominating
and Corporate Governance Committee
The Nominating and Corporate Governance Committee is responsible
for determining criteria for service on our Board of Directors,
identifying, researching and recommending to the Board of
Directors director nominees for election by our stockholders,
selecting nominees to fill vacancies on our Board of Directors
or a committee of the Board, developing and recommending to our
Board of Directors any amendments to our corporate governance
principles and overseeing the self-evaluation of our Board of
Directors and its committees and evaluations of our management.
The members of the Nominating and Corporate Governance Committee
are Messrs. Appling, Canon and Gutermuth. During the year
ended December 31, 2008, the Nominating and Corporate
Governance Committee met five times.
Investment
Committee
Our investment committee is responsible for all aspects of our
investment process, including, origination, due diligence and
underwriting, approval, documentation and closing, and portfolio
management and investment monitoring. The current members of our
investment committee are Messrs. Foster, Reppert and Hyzak.
Our investment strategy involves a team approach,
whereby potential transactions are screened by members of our
investment team before being presented to the investment
committee. Our investment committee meets on an as needed basis
depending on transaction volume.
Code of
Business Conduct and Ethics
We have adopted a code of business conduct and ethics that
applies to our directors, officers and employees. Our code of
business conduct and ethics is available on the Investor
Relations section of our Web site at www.mainstcapital.com
under Governance. We intend to disclose any
future amendments to, or waivers from, this code of conduct
within four business days of the waiver or amendment through a
Web site posting.
65
COMPENSATION
OF DIRECTORS AND EXECUTIVE OFFICERS
DIRECTOR
COMPENSATION
The following table sets forth the compensation that we paid
during the year ended December 31, 2008 to our directors.
Directors who are also employees of Main Street or of its
subsidiaries do not receive compensation for their services as
directors.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned or
|
|
|
Stock Awards
|
|
|
All Other
|
|
|
|
|
Name
|
|
Paid in Cash
|
|
|
(1)(2)
|
|
|
Compensation(3)
|
|
|
Total
|
|
|
Michael Appling Jr.
|
|
$
|
40,000
|
|
|
$
|
45,000
|
|
|
$
|
1,838
|
|
|
$
|
86,838
|
|
Joseph E. Canon
|
|
|
35,000
|
|
|
|
45,000
|
|
|
|
1,838
|
|
|
|
81,838
|
|
Arthur L. French
|
|
|
35,000
|
|
|
|
45,000
|
|
|
|
1,838
|
|
|
|
81,838
|
|
William D. Gutermuth
|
|
|
30,000
|
|
|
|
45,000
|
|
|
|
1,838
|
|
|
|
76,838
|
|
|
|
|
(1) |
|
These amounts represent the dollar amount recognized for
financial statement reporting purposes with respect to the 2008
fiscal year for the fair value of awards granted in 2008 as well
as prior fiscal years, if any, as determined in accordance with
FAS 123R. Pursuant to SEC rules, the amounts shown exclude
the impact of estimated forfeitures related to service-based
vesting conditions. Please see the discussion of the assumptions
made in the valuation of these awards in Note M to the
audited consolidated financial statements included herein. These
amounts reflect our accounting expense for these awards, and do
not correspond to the actual value that will be recognized by
our directors. |
|
(2) |
|
Each of our non-employee directors received an award of 5,000
restricted shares under the Main Street Capital Corporation 2008
Non-Employee Director Restricted Stock Plan on July 1,
2008. 2,500 restricted shares of each grant vested 100%
immediately on the grant date for service on the Board over the
past year, and 2,500 restricted shares of each grant will vest
100% on June 10, 2009, provided that the grantee has been
in continuous service as a member of the Board of Directors
through such date. The grant date fair value of each
non-employee directors award of restricted stock granted
in 2008 was $60,000 based on the $12.00 closing price of our
common stock on the Nasdaq Global Select Market on July 1,
2008. Each non-employee director had 2,500 unvested shares of
restricted stock outstanding as of December 31, 2008. |
|
(3) |
|
These amounts reflect the dollar value of dividends paid on
unvested restricted stock awards in 2008. |
The compensation for non-employee directors for 2008 was
comprised of cash compensation paid to or earned by directors in
connection with their service as a director. That cash
compensation consisted of an annual retainer of $30,000.
Non-employee directors will not receive fees based on meetings
attended absent circumstances that require an exceptionally high
number of meetings within an annual period. We also reimburse
our non-employee directors for all reasonable expenses incurred
in connection with their service on our Board. The chairs of our
Board committees receive additional annual retainers as follows:
|
|
|
|
|
the chair of the Audit Committee: $10,000; and
|
|
|
|
the chair of each of the Compensation and Nominating and
Corporate Governance committees: $5,000.
|
Our 2008 Non-Employee Director Restricted Stock Plan provides a
means through which we may attract and retain qualified
non-employee directors to enter into and remain in service on
our Board of Directors. Under our 2008 Non-Employee Director
Restricted Stock Plan, at the beginning of each one-year term of
service on our Board of Directors, each non-employee director
will receive a number of shares equivalent to $30,000 worth of
shares based on the market value at the close of the exchange on
the date of grant. Forfeiture provisions will lapse as to an
entire award at the end of the one-year term.
66
EXECUTIVE
COMPENSATION
Compensation
Discussion and Analysis
The following Compensation Discussion and Analysis, or
CD&A, provides information relating to the 2008
compensation of Main Streets Chief Executive Officer,
President and Chief Financial Officer and four other most highly
compensated executive officers during 2008. Those six
individuals are referred to in this CD&A as the Named
Executive Officers, or NEOs.
Compensation
Philosophy and Objectives
The Main Street compensation system was developed by the
Compensation Committee and approved by all Independent
Directors. The system is designed to attract and retain key
executives, motivate them to achieve the companys
short-term and long-term objectives, reward them for superior
performance and align their interests with those of the
companys stockholders. Significant elements of the
compensation arrangements with the NEOs (other than the Chief
Executive Officer) are set forth in separate employment
agreements Main Street entered into with them in connection with
the companys initial public offering. Main Streets
Chief Executive Officer, who has signed a non-compete agreement,
serves at the discretion of the Board of Directors. The
structure of those employment agreements and Main Streets
incentive compensation programs are designed to encourage and
reward the following, among other things:
|
|
|
|
|
superior risk-adjusted returns on the companys investment
portfolio;
|
|
|
|
management team development;
|
|
|
|
maintenance of liquidity and capital flexibility to accomplish
the companys business objectives; and
|
|
|
|
strength in income and capital gains to support and grow the
companys dividend payments.
|
Subject to the provisions of the employment agreements with the
NEOs described below, the Compensation Committee has the primary
authority to establish compensation for the NEOs and other key
employees and administers all executive compensation
arrangements and policies. Main Streets Chief Executive
Officer assists the Compensation Committee by providing annual
recommendations regarding the compensation of NEOs and other key
employees, excluding himself. The Compensation Committee can
exercise its discretion in modifying or accepting those
recommendations. The Chief Executive Officer routinely attends
Compensation Committee meetings. However, the Compensation
Committee also meets in executive session without the Chief
Executive Officer or other members of management present when
discussing the Chief Executive Officers compensation and
on certain other occasions.
The Compensation Committee takes into account competitive market
practices with respect to the salaries and total direct
compensation of the NEOs. Members of the Compensation Committee
consider market practices by reviewing proxy statements or
similar information made available by other internally managed
business development companies, or BDCs, under the 1940 Act. The
Compensation Committee also has the authority to utilize
compensation consultants to better understand competitive pay
practices. In this regard, the Compensation Committee engaged a
compensation consultant in late 2008 to study the level and
structure of compensation paid to our NEOs as compared to other
internally managed business development companies, private
equity firms and specialty finance companies (both public and
private). The Compensation Committee is considering the findings
of the compensation consultant but does not currently expect any
material changes to the compensation program for our NEOs.
Assessment
of Market Data
To assess the competitiveness of executive compensation levels,
the Compensation Committee analyzes a comparative group of BDCs
and reviews their competitive performance and compensation
levels. This analysis centers around key elements of
compensation practices within the BDC industry in general and,
more specifically, compensation practices at internally managed
BDCs reasonably comparable in asset size, typical investment
size and type, market capitalization and general business scope
to the company. Since there are relatively few internally
managed BDCs, and because of Main Streets relatively small
asset size and market
67
capitalization in comparison to many BDCs, the Compensation
Committee includes certain internally managed BDCs in Main
Streets peer group that are substantially larger than the
company. The peer group consists of the following companies:
American Capital Strategies, Ltd., Allied Capital Corporation,
Hercules Technology Growth Capital, Inc., Kohlberg Capital
Corporation, MCG Capital Corporation, Patriot Capital Funding,
Inc., Harris & Harris Group, Inc. and Triangle Capital
Corporation.
Items reviewed include, but are not necessarily limited to, base
compensation, bonus compensation, equity option awards,
restricted stock awards, and other compensation as detailed in
the respective proxies, research analysts reports and
other publicly available information. In addition to actual
levels of compensation, the Compensation Committee also analyzes
the approach other BDCs are taking with regard to their
compensation practices. Such items include, but are not
necessarily limited to, the use of employment agreements for
certain employees, a mix of cash and equity compensation, the
use of third party compensation consultants and certain
corporate and executive performance measures established to
achieve long-term total return for stockholders. Although each
of the peer companies is not precisely comparable in size, scope
and operations to the company, the Compensation Committee
believes that they are the most relevant comparable companies
available with disclosed executive compensation data, and
provide a good representation of competitive compensation levels
for the companys executives.
Assessment
of Company Performance
The Compensation Committee believes that consistent financial
performance coupled with reasonable, long-term
stockholders returns and proportional employee
compensation are essential components for Main Streets
long-term business success. Main Street typically makes three to
seven year investments in lower middle-market companies. The
companys business plan involves taking on investment risk
over an extended period of time, and a premium is placed on the
ability to maintain stability of net asset values and continuity
of earnings to pass through to stockholders in the form of
recurring dividends. Main Streets strategy is to generate
current income from debt investments and to realize capital
gains from equity-related investments. This income supports the
payment of dividends to stockholders. The recurring payment of
dividends requires a methodical investment acquisition approach
and active monitoring and management of the investment portfolio
over time. A meaningful part of the companys employee base
is dedicated to the maintenance of asset values and expansion of
this recurring income to support and grow dividends. The
Compensation Committee believes that stability with regard to
the management team is important in achieving successful
implementation of the companys strategy.
Executive
Compensation Components
For 2008, the components of Main Streets direct
compensation program for NEOs include:
|
|
|
|
|
base salary;
|
|
|
|
annual cash bonuses;
|
|
|
|
long-term compensation pursuant to the 2008 Equity Incentive
Plan; and
|
|
|
|
other benefits.
|
The Compensation Committee designs each NEOs direct
compensation package to appropriately reward the NEO for his
contribution to the company. The judgment and experience of the
Compensation Committee are weighed with performance metrics and
consultation with the Chief Executive Officer to determine the
appropriate mix of compensation for each individual. Cash
compensation consisting of base salary and discretionary bonuses
tied to achievement of individual performance goals reviewed and
approved by the Compensation Committee is intended to motivate
NEOs to remain with the company and work to achieve its business
objectives. Stock-based compensation is awarded based on
performance expectations reviewed and approved by the
Compensation Committee for each NEO. The blend of short-term and
long-term compensation may be adjusted from time to time to
balance the Compensation Committees views regarding an
NEOs individual preference for current cash compensation
with appropriate retention incentives.
68
Base
Salary
Base salary is used to recognize particularly the experience,
skills, knowledge and responsibilities required of the NEOs in
their roles. In connection with establishing the base salary of
each NEO, the Compensation Committee and management considered a
number of factors, including the seniority and experience level
of the individual, the functional role of his position, the
level of the individuals responsibility, the
companys ability to replace the individual, the past base
salary of the individual and the number of well-qualified
candidates available in the area. In addition, the Compensation
Committee considers publicly available information regarding the
base salaries paid to similarly situated executive officers and
other competitive market practices.
The salaries of the NEOs are reviewed on an annual basis, as
well as at the time of promotion or any substantial change in
responsibilities. Each of the NEO employment agreements
establishes a target for annual increase in base salary at 5%,
but provides that any increase is at the sole discretion of the
Compensation Committee. Each such employment agreement also
provides that the base salary is not subject to reduction. The
key factors in determining increases in salary level are
relative performance and competitive pressures.
Annual
Cash Bonuses
Annual cash bonuses are intended to reward individual
performance during the year and can therefore be highly variable
from year to year. Bonus opportunities for the NEOs are
determined by the Compensation Committee on a discretionary
basis and are based on performance criteria, including corporate
and individual performance goals and measures, set by the
Compensation Committee with the Chief Executive Officers
input. As more fully described below in Employment
Agreements, the employment agreements of the NEOs provide
for target annual cash bonus amounts as a percentage of base
salary.
Long-Term
Incentive Awards
Main Streets Board and stockholders have approved the 2008
Equity Incentive Plan to provide stock-based awards as long-term
incentive compensation to employees, including the NEOs. The
company uses stock-based awards to (i) attract and retain
key employees, (ii) motivate employees by means of
performance-related
incentives to achieve long-range performance goals,
(iii) enable employees to participate in the companys
long-term growth and (iv) link employees compensation
to the long-term interests of stockholders. At the time of each
award, the Compensation Committee will determine the terms of
the award, including any performance period (or periods) and any
performance objectives relating to vesting of the award.
Options. The Compensation Committee may grant
equity options to purchase Main Streets common stock
(including incentive stock options and nonqualified stock
options). The Compensation Committee expects that any options
granted by it will represent a fixed number of shares of common
stock, will have an exercise price equal to the fair market
value of common stock on the date of grant, and will be
exercisable, or vested, at some later time after
grant. Some stock options may provide for vesting simply by the
grantee remaining employed by Main Street for a period of time,
and some may provide for vesting based on the grantee
and/or the
company attaining specified performance levels. To date the
Compensation Committee has not granted any stock options to any
NEO.
Restricted Stock. Main Street has received
exemptive relief from the SEC that permits the company to grant
restricted stock in exchange for or in recognition of services
by its executive officers and employees. Pursuant to the 2008
Equity Incentive Plan, the Compensation Committee may award
shares of restricted stock to plan participants in such amounts
and on such terms as the Compensation Committee determines in
its sole discretion, provided that such awards are consistent
with the conditions set forth in the SECs exemptive order.
Each restricted stock grant will be for a fixed number of shares
as set forth in an award agreement between the grantee and Main
Street. Award agreements will set forth time
and/or
performance vesting schedules and other appropriate terms
and/or
restrictions with respect to awards, including rights to
dividends and voting rights. As more fully described below, each
of the NEO employment agreements provides for a target annual
restricted stock award or an equitable substitute.
69
Other
Benefits
Main Streets NEOs participate in the same benefit plans
and programs as the companys other employees, including
comprehensive medical insurance, comprehensive dental insurance,
business travel accident insurance, short term disability
coverage, long term disability insurance, and vision care.
Main Street maintains a 401(k) plan for all full-time employees
who are at least 21 years of age through which the company
makes non-discretionary matching contributions to each
participants plan account on the participants
behalf. For each participating employee, the companys
contribution is generally a match of the employees
contributions up to a 4.5% contribution level with a maximum
annual matching contribution of $10,350 during 2008. All
contributions to the plan, including the companys, vest
immediately. The Board of Directors may also, at its sole
discretion, make additional contributions to employee 401(k)
plan accounts, which would vest on the same basis as other
employer contributions.
Perquisites
The company provides no other material benefits, perquisites or
retirement benefits to the NEOs.
Employment
Agreements
In connection with Main Streets initial public offering,
the company entered into employment agreements with each of its
NEOs, other than Mr. Foster, its Chief Executive Officer.
Initial terms of the employment agreements extend to
December 31, 2010. As the Chairman of the Board of
Directors and Chief Executive Officer, Mr. Foster does not
have an employment agreement and will serve as an executive
officer at the direction and discretion of the Board of
Directors. However, Mr. Foster has executed a
confidentiality and non-compete agreement with the company. The
NEO employment agreements specify an initial base salary which
was paid in 2007 and contemplate a 5% target annual increase in
base salary (provided that any increase is in the sole
discretion of the Compensation Committee).
Each NEO employment agreement specifies a target discretionary
annual bonus as a percentage of his then current base salary
based upon achieving the performance objectives established by
the Compensation Committee. Under the NEO employment agreements,
the applicable NEOs have referenced target bonus amounts for
each of the years ending December 31, 2008, 2009 and 2010.
The target bonus amounts for Mr. Reppert are 50%, 60% and
70% of his base salary, respectively, for each of those three
calendar years. The target bonus amounts for Messrs. Stout,
Hartman, Hyzak and Magdol are 40%, 50% and 60% of their base
salaries for each of those three calendar years, respectively.
The Compensation Committee has established applicable individual
performance objectives, and will approve the actual bonus
awarded to each NEO annually.
Each NEO employment agreement also provides for the initial
grant of restricted stock in an amount equal to
40,000 shares for Mr. Reppert and 30,000 shares
for each of Messrs. Stout, Hartman, Hyzak and Magdol in
respect of such executives service performed in 2007,
including in connection with the successful completion of the
companys initial public offering, and in 2008. As
discussed below, initial grants of restricted stock related to
this provision were made to the NEOs on July 1, 2008. In
addition, the NEO employment agreements provide for targeted
annual restricted stock awards for each of calendar years 2009
and 2010 with date of grant valuation of 75% of base salary for
Mr. Reppert and date of grant valuation of 50% of base
salaries for each of Messrs. Stout, Hartman, Hyzak and
Magdol, in each case subject to the Compensation
Committees discretion based on the satisfaction of
objective, reasonable and attainable performance criteria
established by the Compensation Committee. Restricted stock
awards will generally vest in equal annual portions over the
four years subsequent to the date of grant.
The NEO employment agreements also provide for certain severance
and other benefits upon termination after a change of control or
certain other specified termination events. The severance and
other benefits in these circumstances are discussed below and
reflected in the Potential Payments upon Termination or
Change of Control Table.
70
Mr. Repperts employment agreement generally provides
for a non-competition period after his voluntary termination or
a termination without cause by the company. However,
Messrs. Stout, Hartman, Hyzak and Magdol would generally
only be subject to the non-competition provisions of their
employment agreements in the event they are terminated without
cause. The NEO employment agreements also provide for a
non-solicitation period after any termination of employment and
provide for the protection of Main Streets confidential
information.
Change in
Control and Severance
Upon a change in control, equity-based awards under the 2008
Equity Incentive Plan may vest
and/or
become immediately exercisable or salable. In addition, upon
termination of employment following a change in control, the
NEOs who are parties to the NEO employment agreements may be
entitled to severance payments.
2008 Equity Incentive Plan. Upon specified
transactions involving a change in control (as defined in the
2008 Equity Incentive Plan), all outstanding awards under the
2008 Equity Incentive Plan may either be assumed or substituted
for by the surviving entity. If the surviving entity does not
assume or substitute similar awards, the awards held by the plan
participants will be subject to accelerated vesting in full and,
in the case of options, then terminated to the extent not
exercised within a designated time period.
Transactions involving a change in control under the
2008 Equity Incentive Plan include:
|
|
|
|
|
a consolidation, merger, stock sale or similar transaction or
series of related transactions in which Main Street is not the
surviving corporation or which results in the acquisition of all
or substantially all of the companys then outstanding
common stock by a single person or entity or by a group of
persons
and/or
entities acting in concert;
|
|
|
|
a sale or transfer of all or substantially all of the
companys assets;
|
|
|
|
Main Streets dissolution or liquidation; or
|
|
|
|
a change in the membership of the companys Board of
Directors such that the individuals who, as of the effective
date of the plan, constitute the Board of Directors, whom are
referred to as the Continuing Directors, and any new director
whose election or nomination by the Board of Directors was
approved by a vote of at least a majority of the Continuing
Directors, cease to constitute at least a majority of the Board.
|
Severance. Under specified transactions
involving a change in control (as defined in each NEO employment
agreement), if an NEO who is a party to an NEO employment
agreement terminates his employment with Main Street for good
reason within one year following such change in control, or if
the company terminates or fails to renew the NEOs
employment agreement within the one year commencing with a
change in control, he will receive a severance package beginning
on the date of termination. The severance package will include a
lump-sum payment equal to two or three times, depending upon the
NEOs position, the NEOs annual salary at that time,
plus the NEOs target bonus compensation as described in
the employment agreement, and the company will continue to
provide the NEO with certain benefits provided to him
immediately prior to the termination as described in the
employment agreement for a designated time period.
Under the employment agreements, a Change in Control
occurs if:
|
|
|
|
|
A person or a group acquires ownership of Main Streets
capital stock that, together with stock held by such person or
group, constitutes more than 50 percent of the total fair
market value or total voting power of the companys capital
stock;
|
|
|
|
a person or a group acquires (or has acquired during the
12-month
period ending on the date of the most recent acquisition by such
person or persons) ownership of capital stock possessing
30 percent or more of the total voting power of the
companys capital stock;
|
71
|
|
|
|
|
a majority of members of the Board is replaced during any
12-month
period by directors whose appointment or election is not
endorsed by a majority of the members of the Board prior to the
date of such appointment or election; or
|
|
|
|
a person or a group acquires (or has acquired during the
12-month
period ending on the date of the most recent acquisition by such
person or persons) company assets that have a total gross fair
market value equal to or more than 40 percent of the total
gross fair market value of all of the companys assets
immediately prior to such acquisition or acquisitions. Certain
transfers of assets are not considered a change in control if
transferred to specified parties.
|
The rationale behind providing a severance package in certain
events is (1) to attract and retain dedicated and talented
executives and to provide such executives with reasonable
financial remuneration and restitution in the event of
dislocation and disruption of employment as a result of
involuntary severance, and (2) to maintain and maximize
shareholder value through the management teams commitment
and fidelity to the integrity of a
change-in-control
transaction. For further discussion regarding executive
compensation in the event of a termination or change in control,
please see the table entitled Potential Payments upon
Termination or Change in Control Table included herein.
Tax
Deductibility of Compensation
Section 162(m) of the Internal Revenue Code generally
disallows a deduction to public companies to the extent of
excess annual compensation over $1 million paid to certain
executive officers, except for qualified performance-based
compensation. Main Streets general policy, where
consistent with business objectives, is to preserve the
deductibility of executive officer compensation. The
Compensation Committee may authorize forms of compensation that
might not be deductible if the Compensation Committee deems such
to be in the best interests of Main Street and its stockholders.
The company had no nondeductible compensation paid to executive
officers in 2008.
2008
Compensation Determination
The Compensation Committee analyzed the competitiveness of the
components of compensation described above on both an individual
and aggregate basis. The Compensation Committee believes that
the total compensation paid to the NEOs for the fiscal year
ended December 31, 2008 achieves the overall objectives of
Main Streets executive compensation program.
Determination
of Annual Base Salary
The Compensation Committee annually reviews the base salary of
each executive officer, including each NEO, and determines
whether or not to increase it in its sole discretion. Increases
to base salary can be awarded to recognize, among other things,
relative performance, relative cost of living and competitive
pressures. Increases in the 2008 annual base salary of each NEO
over his 2007 annualized base salary are based exclusively on
the loss by such NEO of certain benefits that were received
prior to the companys initial public offering. Without the
adjustments described in the previous sentence, the 2008 base
salary of each NEO would have been equal to such NEOs 2007
annualized base salary.
Mr. Foster was paid an annual base salary of $353,910 for
2008, an increase of 1.5% over his 2007 annualized base salary.
Mr. Reppert was paid an annual base salary of $316,410 for
2008, an increase of 1.7% over his 2007 annualized base salary.
Mr. Stout was paid an annual base salary of $215,160 for
2008, an increase of 2.5% over his 2007 annualized base salary.
Mr. Hartman was paid an annual base salary of $215,160 for
2008, an increase of 2.5% over his 2007 annualized base salary.
72
Mr. Hyzak was paid an annual base salary of $215,160 for
2008, an increase of 2.5% over his 2007 annualized base salary.
Mr. Magdol was paid an annual base salary of $215,160 for
2008, an increase of 2.5% over his 2007 annualized base salary.
Determination
of Annual Cash Incentive Bonus
Cash bonuses are determined annually by the Compensation
Committee on a discretionary basis. Cash bonuses for 2008 were
accrued in 2008 but were determined by the Compensation
Committee and paid to NEOs in the first quarter of 2009. The
2008 target cash bonus percentage of base salary for each NEO is
presented below as well as the actual cash bonus percentage of
base salary for each NEO in 2008. The Compensation Committee, in
its sole discretion, may award cash bonuses that exceed cash
bonus targets if it believes that the performance of the NEO
during the given year merits such a bonus. The company did not
pay a cash bonus to any NEO in 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual % of
|
|
|
|
Target % of
|
|
|
2008 Salary
|
|
Named Executive Officer
|
|
2008 Salary
|
|
|
Awarded
|
|
|
Vincent D. Foster
|
|
|
n/a
|
|
|
|
0
|
%
|
Todd A. Reppert
|
|
|
50
|
%
|
|
|
36
|
%
|
Rodger A. Stout
|
|
|
40
|
%
|
|
|
35
|
%
|
Curtis L. Hartman
|
|
|
40
|
%
|
|
|
35
|
%
|
Dwayne L. Hyzak
|
|
|
40
|
%
|
|
|
35
|
%
|
David L. Magdol
|
|
|
40
|
%
|
|
|
35
|
%
|
The Compensation Committee considered performance achievements
in the determination of cash bonuses for 2008, including company
performance and the personal performance of each individual. The
performance goals used for determining the cash bonuses for NEOs
included, among other things, the following:
|
|
|
|
|
Maintaining liquidity and capital flexibility to accomplish the
companys business objectives;
|
|
|
|
Maintaining appropriate dividend payouts to stockholders;
|
|
|
|
Maintaining the highest ethical standards, internal controls and
adherence to regulatory requirements; and
|
|
|
|
Maintaining reasonable relative overall portfolio performance.
|
Based on a recommendation by Mr. Foster in light of the
current economic environment, the Compensation Committee did not
award Mr. Foster a 2008 cash bonus but will however
consider awarding Mr. Foster additional restricted stock in
2009 in lieu thereof. Cash bonuses were paid as shown below to
other NEOs for 2008 performance. These bonuses are less than
specified in the individual employment contracts of the NEOs but
do not reflect negatively on any individual executives
performance. Instead, these bonus amounts reflect the
Compensation Committees and the executives desire to
maintain an appropriate operating cost level in a difficult
economic environment.
Mr. Reppert was paid an annual cash bonus of $115,000 for
2008. This cash bonus recognizes Mr. Repperts
performance as President and CFO during very turbulent market
conditions and particularly his leadership in strengthening the
companys liquidity and capital flexibility.
Mr. Stout was paid an annual cash bonus of $75,000 for
2008. This cash bonus recognizes Mr. Stouts
management of internal control, financial and accounting
responsibilities while transitioning to treasury and compliance
accountability.
Mr. Hartman was paid an annual cash bonus of $75,000 for
2008. This cash bonus recognizes Mr. Hartmans
performance in managing current portfolio investments, executing
new investment opportunities and developing and training Main
Street personnel.
73
Mr. Hyzak was paid an annual cash bonus of $75,000 for
2008. This cash bonus recognizes Mr. Hyzaks
performance in managing current portfolio investments, executing
new investment opportunities and developing and training Main
Street personnel.
Mr. Magdol was paid an annual cash bonus of $75,000 for
2008. This cash bonus recognizes Mr. Magdols
performance in managing current portfolio investments, executing
new investment opportunities and developing and training Main
Street personnel.
Determination
of Long-Term Incentive Awards
As contemplated by each NEOs employment agreement, after
approval of the 2008 Equity Incentive Plan by the stockholders,
each NEO was granted shares of restricted stock under the plan,
effective July 1, 2008. The 2008 target grant amount of
restricted shares for each NEO is presented below as well as the
actual 2008 grant amount of restricted shares awarded to each
NEO. All restricted stock grants to NEOs under the 2008 Equity
Incentive Plan vest ratably over four years from the grant date.
Messrs. Foster and Reppert recommended that the
Compensation Committee reallocate a portion of their individual
grants of restricted shares to other company employees,
including Messrs. Stout, Hartman, Hyzak and Magdol, for
their diligence and dedication in connection with the successful
initial public offering of the company in October 2007 and in
the implementation of the companys strategies in 2007 and
2008.
|
|
|
|
|
|
|
|
|
|
|
Target Number of
|
|
|
Actual Number of
|
|
Named Executive Officer
|
|
Restricted Shares
|
|
|
Restricted Shares Granted
|
|
|
Vincent D. Foster
|
|
|
n/a
|
|
|
|
30,000
|
|
Todd A. Reppert
|
|
|
40,000
|
|
|
|
30,000
|
|
Rodger A. Stout
|
|
|
30,000
|
|
|
|
35,000
|
|
Curtis L. Hartman
|
|
|
30,000
|
|
|
|
32,500
|
|
Dwayne L. Hyzak
|
|
|
30,000
|
|
|
|
35,000
|
|
David L. Magdol
|
|
|
30,000
|
|
|
|
32,500
|
|
Executive
Officer Compensation
The following table summarizes compensation of our Chief
Executive Officer, our President and Chief Financial Officer and
our four highest paid executive officers who did not serve as
our Chief Executive Officer or Chief Financial Officer during
2008, all of whom we refer to as our NEOs, for the fiscal year
ended December 31, 2008.
Summary
Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
All Other
|
|
|
|
|
Name and Principal Position
|
|
Year
|
|
|
Salary(1)
|
|
|
Bonus(2)
|
|
|
Awards(3)
|
|
|
Compensation(4)
|
|
|
Total
|
|
|
Vincent D. Foster
|
|
|
2008
|
|
|
$
|
353,910
|
|
|
|
n/a
|
|
|
$
|
45,000
|
|
|
$
|
32,400
|
(5)
|
|
$
|
431,310
|
|
Chairman & Chief
|
|
|
2007
|
|
|
|
87,188
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
2,531
|
|
|
|
89,719
|
|
Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Todd A. Reppert
|
|
|
2008
|
|
|
$
|
316,410
|
|
|
$
|
115,000
|
|
|
$
|
45,000
|
|
|
$
|
32,400
|
(6)
|
|
$
|
508,810
|
|
President & Chief
|
|
|
2007
|
|
|
|
77,813
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
2,531
|
|
|
|
80,344
|
|
Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rodger A. Stout
|
|
|
2008
|
|
|
$
|
215,160
|
|
|
$
|
75,000
|
|
|
$
|
52,500
|
|
|
$
|
35,072
|
(7)
|
|
$
|
377,732
|
|
Chief Compliance Officer,
|
|
|
2007
|
|
|
|
52,500
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
2,363
|
|
|
|
54,863
|
|
Senior Vice President Finance and Administration and
Treasurer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Curtis L. Hartman
|
|
|
2008
|
|
|
$
|
215,160
|
|
|
$
|
75,000
|
|
|
$
|
48,750
|
|
|
$
|
33,570
|
(8)
|
|
$
|
372,480
|
|
Senior Vice President
|
|
|
2007
|
|
|
|
52,500
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
2,531
|
|
|
|
55,031
|
|
Dwayne L. Hyzak
|
|
|
2008
|
|
|
$
|
215,160
|
|
|
$
|
75,000
|
|
|
$
|
52,500
|
|
|
$
|
35,407
|
(9)
|
|
$
|
378,067
|
|
Senior Vice President
|
|
|
2007
|
|
|
|
52,500
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
2,531
|
|
|
|
55,031
|
|
David L. Magdol
|
|
|
2008
|
|
|
$
|
215,160
|
|
|
$
|
75,000
|
|
|
$
|
48,750
|
|
|
$
|
33,570
|
(10)
|
|
$
|
372,480
|
|
Senior Vice President
|
|
|
2007
|
|
|
|
52,500
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
2,531
|
|
|
|
55,031
|
|
74
|
|
|
(1) |
|
The 2007 salary amounts reflect the actual salaries of the NEOs
that were in effect during the period from October 4, 2007,
the completion of our initial public offering, through
December 31, 2007. All executive compensation is paid by
one of our wholly owned subsidiaries, Main Street Capital
Partners, LLC. |
|
(2) |
|
These amounts reflect annual cash bonuses earned during 2008 by
the NEOs and were determined based on individual performance
goals adopted by the Compensation Committee. No cash bonuses
were paid to NEOs in 2007. All annual cash bonuses are paid by
one of our wholly owned subsidiaries, Main Street Capital
Partners, LLC. |
|
(3) |
|
These amounts represent the dollar amount recognized for
financial statement reporting purposes with respect to the 2008
fiscal year for the fair value of awards granted in 2008 as well
as prior fiscal years, if any, as determined in accordance with
FAS 123R. Pursuant to SEC rules, the amounts shown exclude
the impact of estimated forfeitures related to service-based
vesting conditions. Please see the discussion of the assumptions
made in the valuation of these awards in Note M to the
audited consolidated financial statements included herein. These
amounts reflect our accounting expense for these awards, and do
not correspond to the actual value that will be recognized by
our NEOs. |
|
(4) |
|
For 2008, these amounts reflect (i) employer matching
contributions we made to our 401(k) Plan and (ii) the
dollar value of dividends paid on unvested restricted stock
awards. For 2007, these amounts reflect employer matching
contributions we made to our 401(k) Plan during the period from
October 4, 2007, the completion of our initial public
offering, through December 31, 2007. We make matching
contributions for each semi-monthly payroll period. |
|
(5) |
|
Includes $10,350 employer matching contributions to our 401(k)
Plan and $22,050 dollar value of dividends on unvested
restricted stock awards. |
|
(6) |
|
Includes $10,350 employer matching contributions to our 401(k)
Plan and $22,050 dollar value of dividends on unvested
restricted stock awards. |
|
(7) |
|
Includes $25,725 dollar value of dividends on unvested
restricted stock awards. |
|
(8) |
|
Includes $23,888 dollar value of dividends on unvested
restricted stock awards. |
|
(9) |
|
Includes $25,725 dollar value of dividends on unvested
restricted stock awards. |
|
(10) |
|
Includes $23,888 dollar value of dividends on unvested
restricted stock awards. |
Grants of
Plan-Based Awards
The following table sets forth information regarding restricted
stock awards granted to our NEOs in fiscal 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
|
|
|
|
|
|
Awards;
|
|
|
Grant Date
|
|
|
|
|
|
Number of
|
|
|
Fair Value
|
|
|
|
|
|
Shares of
|
|
|
of Stock
|
|
Name
|
|
Grant Date
|
|
Stock
|
|
|
Awards
|
|
|
Vincent D. Foster
|
|
7/1/08
|
|
|
30,000
|
|
|
$
|
360,000
|
|
Todd A. Reppert
|
|
7/1/08
|
|
|
30,000
|
|
|
$
|
360,000
|
|
Rodger A. Stout
|
|
7/1/08
|
|
|
35,000
|
|
|
$
|
420,000
|
|
Curtis L. Hartman
|
|
7/1/08
|
|
|
32,500
|
|
|
$
|
390,000
|
|
Dwayne L. Hyzak
|
|
7/1/08
|
|
|
35,000
|
|
|
$
|
420,000
|
|
David L. Magdol
|
|
7/1/08
|
|
|
32,500
|
|
|
$
|
390,000
|
|
75
Outstanding
Equity Awards at Fiscal Year-End
The following table sets forth the awards of restricted stock
for which forfeiture provisions were outstanding at
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
|
|
|
|
|
Market Value of
|
|
|
|
Number of Shares
|
|
|
Shares of
|
|
|
|
of Stock that
|
|
|
Stock that Have Not
|
|
Name
|
|
Have Not Vested(1)
|
|
|
Vested(2)
|
|
|
Vincent D. Foster
|
|
|
30,000
|
|
|
$
|
293,100
|
|
Todd A. Reppert
|
|
|
30,000
|
|
|
$
|
293,100
|
|
Rodger A. Stout
|
|
|
35,000
|
|
|
$
|
341,950
|
|
Curtis L. Hartman
|
|
|
32,500
|
|
|
$
|
317,525
|
|
Dwayne L. Hyzak
|
|
|
35,000
|
|
|
$
|
341,950
|
|
David L. Magdol
|
|
|
32,500
|
|
|
$
|
317,525
|
|
|
|
|
(1) |
|
No restricted stock awards have been transferred. |
|
(2) |
|
The market value of shares of stock that have not vested was
determined based on the closing price of our common stock on the
Nasdaq Global Select Market on December 31, 2008, which was
$9.77. |
Potential
Payments upon Termination or Change in Control
Each NEO, other than our Chief Executive Officer (who has signed
a non-compete agreement and serves at the discretion of our
Board of Directors), is entitled under his employment agreement
to certain payments upon termination of employment or in the
event of a change in control. The following table sets forth
those potential payments as of December 31, 2008 with
respect to each applicable NEO:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within One Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
After Change in
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
Without Cause
|
|
|
Control; Termination
|
|
|
|
|
|
|
|
|
|
|
|
|
With
|
|
|
or Good
|
|
|
Without Cause or
|
|
|
|
Benefit
|
|
|
Death(3)
|
|
|
Disability(3)
|
|
|
Cause(4)
|
|
|
Reason(3)(4)
|
|
|
Good Reason(3)(4)
|
|
|
Todd A. Reppert
|
|
|
Severance(1
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
632,820
|
|
|
$
|
949,230
|
|
|
|
|
Bonus(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
379,692
|
|
|
|
569,538
|
|
Rodger A. Stout
|
|
|
Severance(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
322,740
|
|
|
|
430,320
|
|
|
|
|
Bonus(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
161,370
|
|
|
|
215,160
|
|
Curtis L. Hartman
|
|
|
Severance(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
322,740
|
|
|
|
430,320
|
|
|
|
|
Bonus(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
161,370
|
|
|
|
215,160
|
|
Dwayne L. Hyzak
|
|
|
Severance(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
322,740
|
|
|
|
430,320
|
|
|
|
|
Bonus(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
161,370
|
|
|
|
215,160
|
|
David L. Magdol
|
|
|
Severance(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
322,740
|
|
|
|
430,320
|
|
|
|
|
Bonus(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
161,370
|
|
|
|
215,160
|
|
|
|
|
(1) |
|
Severance pay includes an NEOs annual base salary and
applicable multiple thereof paid monthly beginning at the time
of termination or paid in lump-sum if termination is within one
year of a change in control. |
|
(2) |
|
Bonus compensation includes an NEOs current target annual
bonus and applicable multiple thereof paid monthly beginning at
the time of termination or paid lump-sum if termination is
within one year of a change in control. |
|
(3) |
|
Upon these termination events, the NEO will become fully vested
in any previously unvested stock-based compensation. |
|
(4) |
|
For a discussion of how the employment agreements define the
term Change of Control, see Compensation
Discussion and Analysis Change in Control and
Severance. The employment agreements define |
76
|
|
|
|
|
Cause as conviction of a felony or other crime of
moral turpitude; failure or refusal to perform all duties and
obligations; gross negligence or willful misconduct to our
material detriment; or the material breach of the employment
agreement or any provision of a uniformly applied policy such as
our Code of Business Conduct and Ethics. The employment
agreements define Good Reason as the existence,
without the executives consent, of any of the following
conditions at any time during the two years prior to the
executives termination: a material diminution in an
executives base salary, target bonus or authority and
duties (not including any position on our Board of Directors);
implementation of a requirement that the executive report to an
employee or corporate officer rather than directly to the
Chairman of the Board and the Chief Executive Officer or a
material diminution in the authority and responsibilities of the
executives supervisor; a material change in the location
where the executives duties are to be performed; or the
material breach by us of the employment agreement, including the
failure of any successor to us to assume the terms of the
agreement. |
CERTAIN
RELATIONSHIPS AND TRANSACTIONS
Transactions
with Related Persons
We co-invested with Main Street Capital II , LP in several
existing portfolio investments prior to our initial public
offering (the IPO), but did not co-invest with Main
Street Capital II, LP subsequent to the IPO and prior to June
2008. In June 2008, we received exemptive relief from the SEC to
allow us to resume co-investing with Main Street Capital II, LP
in accordance with the terms of such exemptive relief. Main
Street Capital II, LP is managed by Main Street Capital
Partners, LLC, and Main Street Capital Partners, LLC is wholly
owned by us. Main Street Capital II, LP is a privately owned
SBIC fund with similar investment objectives to us and which
began its investment operations in January 2006. The
co-investments among us and Main Street Capital II, LP have all
been made at the same time and on the same terms and conditions.
The co-investments were also made in accordance with Main Street
Capital Partners, LLCs conflicts policy and in accordance
with the applicable SBIC conflict of interest regulations.
In addition, during the year ended December 31, 2008, one
of our wholly owned subsidiaries, Main Street Capital Partners,
LLC, received $3.3 million from Main Street Capital II
, L.P. for providing investment advisory services to Main Street
Capital II, L.P . Messrs. Foster and Reppert control the
general partner of Main Street Capital II, L.P.
CONTROL
PERSONS AND PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the
beneficial ownership of our common stock by:
|
|
|
|
|
each person known to us to beneficially own more than five
percent of the outstanding shares of our common stock;
|
|
|
|
each of our directors and executive officers; and
|
|
|
|
all of our directors and executive officers as a group.
|
Beneficial ownership is determined in accordance with the rules
of the SEC and includes voting or investment power with respect
to the securities. There is no common stock subject to options
that are currently exercisable or exercisable within
60 days of March 20, 2009. Percentage of beneficial
ownership is based on 9,076,139 shares of common stock
outstanding as of March 20, 2009.
77
Unless otherwise indicated, to our knowledge, each stockholder
listed below has sole voting and investment power with respect
to the shares beneficially owned by the stockholder, and
maintains an address
c/o Main
Street Capital Corporation. Our address is 1300 Post Oak
Boulevard, Suite 800, Houston, Texas 77056.
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
Owned Beneficially
|
|
Name
|
|
Number
|
|
|
Percentage
|
|
|
Independent Directors:
|
|
|
|
|
|
|
|
|
Michael Appling Jr.
|
|
|
19,239
|
|
|
|
*
|
|
Joseph E. Canon
|
|
|
292,620
|
(1)
|
|
|
3.2
|
%
|
Arthur L. French
|
|
|
15,487
|
|
|
|
*
|
|
William D. Gutermuth
|
|
|
10,709
|
|
|
|
*
|
|
Interested Directors:
|
|
|
|
|
|
|
|
|
Vincent D. Foster
|
|
|
1,068,785
|
(2)
|
|
|
11.78
|
%
|
Todd A. Reppert
|
|
|
654,089
|
(3)
|
|
|
7.21
|
%
|
Executive Officers:
|
|
|
|
|
|
|
|
|
Rodger A. Stout
|
|
|
67,537
|
|
|
|
*
|
|
Jason B. Beauvais
|
|
|
9,176
|
|
|
|
*
|
|
Michael S. Galvan
|
|
|
8,575
|
|
|
|
*
|
|
Curtis L. Hartman
|
|
|
227,972
|
(4)
|
|
|
2.51
|
%
|
Dwayne L. Hyzak
|
|
|
239,486
|
|
|
|
2.64
|
%
|
David L. Magdol
|
|
|
247,767
|
|
|
|
2.73
|
%
|
All Directors and Officers as a Group (12 persons)
|
|
|
2,861,443
|
|
|
|
31.53
|
%
|
|
|
|
* |
|
Less than 1% |
|
(1) |
|
Includes (i) 63,121 shares of common stock held by the
Dodge Jones Foundation for which Mr. Canon has sole voting
and investment power as Executive Vice President and
(ii) 218,183 shares of common stock held by JMK
Investments, LP for which Mr. Canon has shared voting and
investment power as co-manager of its general partner.
Mr. Canon disclaims beneficial ownership of the securities
held by the Dodge Jones Foundation and JMK Investments, LP. |
|
(2) |
|
Includes 7,629 shares of common stock held by Foster
Irrevocable Trust for the benefit of Mr. Fosters
children. Although Mr. Foster is not the trustee, and
accordingly does not have voting power or dispositive power over
these shares, he may from time to time direct the trustee to
vote and dispose of these shares. Also includes
2,222 shares and 2,175 shares held in custodial
accounts for Mr. Fosters daughters, Amy Foster and
Brittany Foster, respectively. |
|
(3) |
|
Includes 142,387 shares of common stock held by Reppert
Investments Limited Partnership which are beneficially owned by
Mr. Reppert. |
|
(4) |
|
Includes 188,947 shares of common stock held in margin
accounts or otherwise pledged. |
78
The following table sets forth, as of March 20, 2009, the
dollar range of our equity securities that is beneficially owned
by each of our directors.
|
|
|
|
|
|
|
Dollar Range of Equity
|
|
|
|
Securities Beneficially
|
|
|
|
Owned(1)(2)(3)
|
|
|
Interested Directors:
|
|
|
|
|
Vincent D. Foster
|
|
over $
|
100,000
|
|
Todd A. Reppert
|
|
over $
|
100,000
|
|
Independent Directors:
|
|
|
|
|
Michael Appling Jr.
|
|
over $
|
100,000
|
|
Joseph E. Canon
|
|
over $
|
100,000
|
|
Arthur L. French
|
|
over $
|
100,000
|
|
William D. Gutermuth
|
|
over $
|
100,000
|
|
|
|
|
(1) |
|
Beneficial ownership has been determined in accordance with Rule
16a-1(a)(2) of the Exchange Act. |
|
(2) |
|
The dollar range of equity securities beneficially owned by our
directors is based on a stock price of $9.47 per share as of
March 20, 2009. |
|
(3) |
|
The dollar range of equity securities beneficially owned are:
none, $1-$10,000, $10,001-$50,000,
$50,001-$100,000,
or over $100,000. |
SALES OF
COMMON STOCK BELOW NET ASSET VALUE
On June 17, 2008, our common stockholders voted to allow us
to issue common stock at any discount from our net asset value
(NAV) per share for a period of one year ending on the earlier
of June 16, 2009 or the date of our 2009 annual
stockholders meeting, and we are seeking similar approval from
our stockholders at our 2009 annual stockholders meeting for the
following year. In order to sell shares pursuant to this
authorization:
|
|
|
|
|
a majority of our independent directors who have no financial
interest in the sale must have approved the sale; and
|
|
|
|
a majority of such directors, who are not interested persons of
Main Street, in consultation with the underwriter or
underwriters of the offering if it is to be underwritten, must
have determined in good faith, and as of a time immediately
prior to the first solicitation by us or on our behalf of firm
commitments to purchase such shares or immediately prior to the
issuance of such shares, that the price at which such shares are
to be sold is not less than a price which closely approximates
the market value of those shares, less any underwriting
commission or discount.
|
We are permitted to sell shares of common stock below NAV per
share in rights offerings although we will not do so under this
prospectus. Any offering of common stock below NAV per share
will be designed to raise capital for investment in accordance
with our investment objectives and business strategies.
In making a determination that an offering below NAV per share
is in our and our stockholders best interests, our Board
of Directors would consider a variety of factors including:
|
|
|
|
|
The effect that an offering below NAV per share would have on
our stockholders, including the potential dilution they would
experience as a result of the offering;
|
|
|
|
The amount per share by which the offering price per share and
the net proceeds per share are less than the most recently
determined NAV per share;
|
|
|
|
The relationship of recent market prices of our common stock to
NAV per share and the potential impact of the offering on the
market price per share of our common stock;
|
|
|
|
Whether the proposed offering price would closely approximate
the market value of our shares;
|
79
|
|
|
|
|
The potential market impact of being able to raise capital
during the current financial market difficulties;
|
|
|
|
The nature of any new investors anticipated to acquire shares in
the offering;
|
|
|
|
The anticipated rate of return on and quality, type and
availability of investments to be funded with the proceeds from
the offering, if any; and
|
|
|
|
The leverage available to us, both before and after any
offering, and the terms thereof.
|
Sales by us of our common stock at a discount from NAV pose
potential risks for our existing stockholders whether or not
they participate in the offering, as well as for new investors
who participate in the offering.
The following three headings and accompanying tables will
explain and provide hypothetical examples on the impact of an
offering at a price less than NAV per share on three different
sets of investors:
existing stockholders who do not purchase any
shares in the offering;
|
|
|
|
|
existing stockholders who purchase a relatively small amount of
shares in the offering or a relatively large amount of shares in
the offering; and
|
|
|
|
new investors who become stockholders by purchasing shares in
the offering.
|
Impact on
Existing Stockholders who do not Participate in the
Offering
Our existing stockholders who do not participate in an offering
below NAV per share or who do not buy additional shares in the
secondary market at the same or lower price we obtain in the
offering (after expenses and commissions) face the greatest
potential risks. These stockholders will experience an immediate
decrease (often called dilution) in the NAV of the shares they
hold and their NAV per share. These stockholders will also
experience a disproportionately greater decrease in their
participation in our earnings and assets and their voting power
than the increase we will experience in our assets, potential
earning power and voting interests due to the offering. These
stockholders may also experience a decline in the market price
of their shares, which often reflects to some degree announced
or potential decreases in NAV per share. This decrease could be
more pronounced as the size of the offering and level of
discount to NAV increases.
80
The following table illustrates the level of NAV dilution that
would be experienced by a nonparticipating stockholder in three
different hypothetical offerings of different sizes and levels
of discount from NAV per share. Actual sales prices and
discounts may differ from the presentation below.
The examples assume that Company XYZ has 1,000,000 common shares
outstanding, $15,000,000 in total assets and $5,000,000 in total
liabilities. The current NAV and NAV per share are thus
$10,000,000 and $10.00. The table illustrates the dilutive
effect on nonparticipating Stockholder A of (1) an offering
of 50,000 shares (5% of the outstanding shares) at $9.50
per share after offering expenses and commission (a 5% discount
from NAV), (2) an offering of 100,000 shares (10% of
the outstanding shares) at $9.00 per share after offering
expenses and commissions (a 10% discount from NAV) and
(3) an offering of 200,000 shares (20% of the
outstanding shares) at $8.00 per share after offering expenses
and commissions (a 20% discount from NAV). The prospectus
supplement pursuant to which any discounted offering is made
will include a chart based on the actual number of shares in
such offering and the actual discount to the most recently
determined NAV.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Example 1
|
|
|
Example 2
|
|
|
Example 3
|
|
|
|
|
|
|
5% Offering
|
|
|
10% Offering
|
|
|
20% Offering
|
|
|
|
|
|
|
at 5% Discount
|
|
|
at 10% Discount
|
|
|
at 20% Discount
|
|
|
|
Prior to Sale
|
|
|
Following
|
|
|
|
|
|
Following
|
|
|
|
|
|
Following
|
|
|
|
|
|
|
Below NAV
|
|
|
Sale
|
|
|
% Change
|
|
|
Sale
|
|
|
% Change
|
|
|
Sale
|
|
|
% Change
|
|
|
Offering Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price per Share to Public(1)
|
|
|
|
|
|
$
|
10.00
|
|
|
|
|
|
|
$
|
9.47
|
|
|
|
|
|
|
$
|
8.42
|
|
|
|
|
|
Net Proceeds per Share to Issuer
|
|
|
|
|
|
$
|
9.50
|
|
|
|
|
|
|
$
|
9.00
|
|
|
|
|
|
|
$
|
8.00
|
|
|
|
|
|
Increase in Shares and Decrease to NAV
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Shares Outstanding
|
|
|
1,000,000
|
|
|
|
1,050,000
|
|
|
|
5.00
|
%
|
|
|
1,100,000
|
|
|
|
10.00
|
%
|
|
|
1,200,000
|
|
|
|
20.00
|
%
|
NAV per Share
|
|
$
|
10.00
|
|
|
$
|
9.98
|
|
|
|
(0.20
|
)%
|
|
$
|
9.91
|
|
|
|
(0.90
|
)%
|
|
$
|
9.67
|
|
|
|
(3.30
|
)%
|
Dilution to Nonparticipating Stockholder A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share Dilution
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Held by Stockholder A
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
|
|
|
|
10,000
|
|
|
|
|
|
|
|
10,000
|
|
|
|
|
|
Percentage Outstanding Held by Stockholder A
|
|
|
1.00
|
%
|
|
|
0.95
|
%
|
|
|
(4.76
|
)%
|
|
|
0.91
|
%
|
|
|
(9.09
|
)%
|
|
|
0.83
|
%
|
|
|
(16.67
|
)%
|
NAV Dilution
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total NAV Held by Stockholder A
|
|
$
|
100,000
|
|
|
$
|
99,800
|
|
|
|
|
|
|
$
|
99,100
|
|
|
|
|
|
|
$
|
96,700
|
|
|
|
|
|
Total Investment by Stockholder A (Assumed to be $10.00 per
Share)
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
|
|
|
|
|
$
|
100,000
|
|
|
|
|
|
|
$
|
100,000
|
|
|
|
|
|
Total Dilution to Stockholder A (Total NAV Less Total Investment)
|
|
|
|
|
|
$
|
(200
|
)
|
|
|
|
|
|
$
|
(900
|
)
|
|
|
|
|
|
$
|
(3,300
|
)
|
|
|
|
|
NAV Dilution per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NAV per Share Held by Stockholder A
|
|
|
|
|
|
$
|
9.98
|
|
|
|
|
|
|
$
|
9.91
|
|
|
|
|
|
|
$
|
9.67
|
|
|
|
|
|
Investment per Share Held by Stockholder A (Assumed to be $10.00
per Share on Shares Held Prior to Sale)
|
|
$
|
10.00
|
|
|
$
|
10.00
|
|
|
|
|
|
|
$
|
10.00
|
|
|
|
|
|
|
$
|
10.00
|
|
|
|
|
|
NAV Dilution per Share Experienced by Stockholder A (NAV per
Share Less Investment per Share)
|
|
|
|
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
$
|
(0.09
|
)
|
|
|
|
|
|
$
|
(0.33
|
)
|
|
|
|
|
Percentage NAV Dilution Experienced by Stockholder A (NAV
Dilution per Share Divided by Investment per Share)
|
|
|
|
|
|
|
|
|
|
|
(0.20
|
)%
|
|
|
|
|
|
|
(0.90
|
)%
|
|
|
|
|
|
|
(3.30
|
)%
|
|
|
|
(1) |
|
Assumes 5% in selling compensation and expenses paid by us. |
81
Impact on
Existing Stockholders who do Participate in the
Offering
Our existing stockholders who participate in an offering below
NAV per share or who buy additional shares in the secondary
market at the same or lower price as we obtain in the offering
(after expenses and commissions) will experience the same types
of NAV dilution as the nonparticipating stockholders, albeit at
a lower level, to the extent they purchase less than the same
percentage of the discounted offering as their interest in our
shares immediately prior to the offering. The level of NAV
dilution to such stockholders will decrease as the number of
shares such stockholders purchase increases. Existing
stockholders who buy more than their proportionate percentage
will experience NAV dilution but will, in contrast to existing
stockholders who purchase less than their proportionate share of
the offering, experience an increase (often called accretion) in
NAV per share over their investment per share and will also
experience a disproportionately greater increase in their
participation in our earnings and assets and their voting power
than our increase in assets, potential earning power and voting
interests due to the offering. The level of accretion will
increase as the excess number of shares purchased by such
stockholder increases. Even a stockholder who over-participates
will, however, be subject to the risk that we may make
additional discounted offerings in which such stockholder does
not participate, in which case such a stockholder will
experience NAV dilution as described above in such subsequent
offerings. These stockholders may also experience a decline in
the market price of their shares, which often reflects to some
degree announced or potential decreases in NAV per share. This
decrease could be more pronounced as the size of the offering
and the level of discount to NAV increases.
The following chart illustrates the level of dilution and
accretion in the hypothetical 20% discount offering from the
prior chart (Example 3) for a stockholder that acquires
shares equal to (1) 50% of its proportionate share of the
offering (i.e., 1,000 shares, which is 0.5% of an offering
of 200,000 shares rather than its 1.0% proportionate share)
and (2) 150% of such percentage (i.e., 3,000 shares,
which is 1.5% of an offering of 200,000 shares rather than
its 1.0% proportionate share). The prospectus supplement
pursuant to which any discounted offering is made will include a
chart for this example based on the actual number of shares in
such offering and the actual discount from the most recently
determined NAV per share.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50%
|
|
|
150%
|
|
|
|
|
|
|
Participation
|
|
|
Participation
|
|
|
|
Prior to Sale
|
|
|
Following
|
|
|
|
|
|
Following
|
|
|
|
|
|
|
Below NAV
|
|
|
Sale
|
|
|
% Change
|
|
|
Sale
|
|
|
% Change
|
|
|
Offering Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price per Share to Public(1)
|
|
|
|
|
|
$
|
8.42
|
|
|
|
|
|
|
$
|
8.42
|
|
|
|
|
|
Net Proceeds per Share to Issuer
|
|
|
|
|
|
$
|
8.00
|
|
|
|
|
|
|
$
|
8.00
|
|
|
|
|
|
Increase in Shares and Decrease to NAV
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Shares Outstanding
|
|
|
1,000,000
|
|
|
|
1,200,000
|
|
|
|
20.00
|
%
|
|
|
1,200,000
|
|
|
|
20.00
|
%
|
NAV per Share
|
|
$
|
10.00
|
|
|
$
|
9.67
|
|
|
|
(3.33
|
)%
|
|
$
|
9.67
|
|
|
|
(3.33
|
)%
|
Dilution/Accretion to Participating Stockholder A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share Dilution/Accretion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Held by Stockholder A
|
|
|
10,000
|
|
|
|
11,000
|
|
|
|
10.00
|
%
|
|
|
13,000
|
|
|
|
30.00
|
%
|
Percentage Outstanding Held by Stockholder A
|
|
|
1.00
|
%
|
|
|
0.92
|
%
|
|
|
(8.33
|
)%
|
|
|
1.08
|
%
|
|
|
8.33
|
%
|
NAV Dilution/Accretion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total NAV Held by Stockholder A
|
|
$
|
100,000
|
|
|
$
|
106,333
|
|
|
|
6.33
|
%
|
|
$
|
125,667
|
|
|
|
25.67
|
%
|
Total Investment by Stockholder A (Assumed to be $10.00 per
Share on Shares Held Prior to Sale)
|
|
|
|
|
|
$
|
108,420
|
|
|
|
|
|
|
$
|
125,260
|
|
|
|
|
|
Total Dilution/Accretion to Stockholder A (Total NAV Less Total
Investment)
|
|
|
|
|
|
$
|
(2,087
|
)
|
|
|
|
|
|
$
|
407
|
|
|
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50%
|
|
|
150%
|
|
|
|
|
|
|
Participation
|
|
|
Participation
|
|
|
|
Prior to Sale
|
|
|
Following
|
|
|
|
|
|
Following
|
|
|
|
|
|
|
Below NAV
|
|
|
Sale
|
|
|
% Change
|
|
|
Sale
|
|
|
% Change
|
|
|
NAV Dilution/Accretion per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NAV per Share Held by Stockholder A
|
|
|
|
|
|
$
|
9.67
|
|
|
|
|
|
|
$
|
9.67
|
|
|
|
|
|
Investment per Share Held by Stockholder A (Assumed to be $10.00
per Share on Shares Held Prior to Sale)
|
|
$
|
10.00
|
|
|
$
|
9.86
|
|
|
|
(1.44
|
)%
|
|
$
|
9.64
|
|
|
|
(3.65
|
)%
|
NAV Dilution/Accretion per Share Experienced by Stockholder A
(NAV per Share Less Investment per Share)
|
|
|
|
|
|
$
|
(0.19
|
)
|
|
|
|
|
|
$
|
0.03
|
|
|
|
|
|
Percentage NAV Dilution/Accretion Experienced by Stockholder A
(NAV Dilution/Accretion per Share Divided by Investment per
Share)
|
|
|
|
|
|
|
|
|
|
|
(1.92
|
)%
|
|
|
|
|
|
|
0.32
|
%
|
|
|
|
(1) |
|
Assumes 5% in selling compensation and expenses paid by us. |
Impact on
New Investors
Investors who are not currently stockholders, but who
participate in an offering below NAV and whose investment per
share is greater than the resulting NAV per share due to selling
compensation and expenses paid by us will experience an
immediate decrease, albeit small, in the NAV of their shares and
their NAV per share compared to the price they pay for their
shares (Example 1 below). On the other hand, investors who are
not currently stockholders, but who participate in an offering
below NAV per share and whose investment per share is also less
than the resulting NAV per share will experience an immediate
increase in the NAV of their shares and their NAV per share
compared to the price they pay for their shares (Examples 2 and
3 below). These latter investors will experience a
disproportionately greater participation in our earnings and
assets and their voting power than our increase in assets,
potential earning power and voting interests. These investors
will, however, be subject to the risk that we may make
additional discounted offerings in which such new stockholder
does not participate, in which case such new stockholder will
experience dilution as described above in such subsequent
offerings. These investors may also experience a decline in the
market price of their shares, which often reflects to some
degree announced or potential decreases in NAV per share. This
decrease could be more pronounced as the size of the offering
and level of discount to NAV increases.
83
The following chart illustrates the level of dilution or
accretion for new investors that would be experienced by a new
investor in the same hypothetical 5%, 10% and 20% discounted
offerings as described in the first chart above. The
illustration is for a new investor who purchases the same
percentage (1.00%) of the shares in the offering as Stockholder
A in the prior examples held immediately prior to the offering.
The prospectus supplement pursuant to which any discounted
offering is made will include a chart for these examples based
on the actual number of shares in such offering and the actual
discount from the most recently determined NAV per share.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Example 1
|
|
|
Example 2
|
|
|
Example 3
|
|
|
|
|
|
|
5% Offering
|
|
|
10% Offering
|
|
|
20% Offering
|
|
|
|
|
|
|
at 5% Discount
|
|
|
at 10% Discount
|
|
|
at 20% Discount
|
|
|
|
Prior to Sale
|
|
|
Following
|
|
|
|
|
|
Following
|
|
|
|
|
|
Following
|
|
|
|
|
|
|
Below NAV
|
|
|
Sale
|
|
|
% Change
|
|
|
Sale
|
|
|
% Change
|
|
|
Sale
|
|
|
% Change
|
|
|
Offering Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price per Share to Public(1)
|
|
|
|
|
|
$
|
10.00
|
|
|
|
|
|
|
$
|
9.47
|
|
|
|
|
|
|
$
|
8.42
|
|
|
|
|
|
Net Proceeds per Share to Issuer
|
|
|
|
|
|
$
|
9.50
|
|
|
|
|
|
|
$
|
9.00
|
|
|
|
|
|
|
$
|
8.00
|
|
|
|
|
|
Increase in Shares and Decrease to NAV
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Shares Outstanding
|
|
|
1,000,000
|
|
|
|
1,050,000
|
|
|
|
5.00
|
%
|
|
|
1,100,000
|
|
|
|
10.00
|
%
|
|
|
1,200,000
|
|
|
|
20.00
|
%
|
NAV per Share
|
|
$
|
10.00
|
|
|
$
|
9.98
|
|
|
|
(0.20
|
)%
|
|
$
|
9.91
|
|
|
|
(0.90
|
)%
|
|
$
|
9.67
|
|
|
|
(3.30
|
)%
|
Dilution/Accretion to New Investor A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share Dilution
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Held by Investor A
|
|
|
|
|
|
|
500
|
|
|
|
|
|
|
|
1,000
|
|
|
|
|
|
|
|
2,000
|
|
|
|
|
|
Percentage Outstanding Held by Investor A
|
|
|
0.00
|
%
|
|
|
0.05
|
%
|
|
|
|
|
|
|
0.09
|
%
|
|
|
|
|
|
|
0.17
|
%
|
|
|
|
|
NAV Dilution
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total NAV Held by Investor A
|
|
|
|
|
|
$
|
4,990
|
|
|
|
|
|
|
$
|
9,910
|
|
|
|
|
|
|
$
|
19,340
|
|
|
|
|
|
Total Investment by Investor A (At Price to Public)
|
|
|
|
|
|
$
|
5,000
|
|
|
|
|
|
|
$
|
9,470
|
|
|
|
|
|
|
$
|
16,840
|
|
|
|
|
|
Total Dilution/Accretion to Investor A (Total NAV Less Total
Investment)
|
|
|
|
|
|
$
|
(10
|
)
|
|
|
|
|
|
$
|
440
|
|
|
|
|
|
|
$
|
2,500
|
|
|
|
|
|
NAV Dilution per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NAV per Share Held by Investor A
|
|
|
|
|
|
$
|
9.98
|
|
|
|
|
|
|
$
|
9.91
|
|
|
|
|
|
|
$
|
9.67
|
|
|
|
|
|
Investment per Share Held by Investor A
|
|
|
|
|
|
$
|
10.00
|
|
|
|
|
|
|
$
|
9.47
|
|
|
|
|
|
|
$
|
8.42
|
|
|
|
|
|
NAV Dilution/Accretion per Share Experienced by Investor A (NAV
per Share Less Investment per Share)
|
|
|
|
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
$
|
0.44
|
|
|
|
|
|
|
$
|
1.25
|
|
|
|
|
|
Percentage NAV Dilution/Accretion Experienced by Investor A (NAV
Dilution/Accretion per Share Divided by Investment per Share)
|
|
|
|
|
|
|
|
|
|
|
(0.20
|
)%
|
|
|
|
|
|
|
4.65
|
%
|
|
|
|
|
|
|
14.85
|
%
|
|
|
|
(1) |
|
Assumes 5% in selling compensation and expenses paid by us. |
84
DIVIDEND
REINVESTMENT PLAN
We have adopted a dividend reinvestment plan that provides for
the reinvestment of dividends on behalf of our stockholders,
unless a stockholder has elected to receive dividends in cash.
As a result, if we declare a cash dividend, our stockholders who
have not opted out of our dividend reinvestment plan
by the dividend record date will have their cash dividend
automatically reinvested into additional shares of our common
stock.
No action will be required on the part of a registered
stockholder to have their cash dividends reinvested in shares of
our common stock. A registered stockholder may elect to receive
an entire dividend in cash by notifying American Stock
Transfer & Trust Company, the plan administrator
and our transfer agent and registrar, in writing so that such
notice is received by the plan administrator no later than the
record date for dividends to stockholders. The plan
administrator will set up an account for shares acquired through
the plan for each stockholder who has not elected to receive
dividends in cash and hold such shares in non-certificated form.
Upon request by a stockholder participating in the plan,
received in writing not less than 10 days prior to the
record date, the plan administrator will, instead of crediting
shares to the participants account, issue a certificate
registered in the participants name for the number of
whole shares of our common stock and a check for any fractional
share. Those stockholders whose shares are held by a broker or
other financial intermediary may receive dividends in cash by
notifying their broker or other financial intermediary of their
election.
When the share price is generally trading above net asset value,
we intend to primarily use newly issued shares to implement the
plan. However, we reserve the right to purchase shares in the
open market in connection with our implementation of the plan
when our share price is generally trading below net asset value.
The number of newly issued shares to be issued to a stockholder
is determined by dividing the total dollar amount of the
dividend payable to such stockholder by the market price per
share of our common stock at the close of regular trading on the
Nasdaq Global Select Market on the dividend payment date. Shares
purchased in open market transactions by the administrator of
the dividend reinvestment plan will be allocated to a
stockholder based upon the average purchase price, excluding any
brokerage charges or other charges, of all shares of common
stock purchased with respect to the dividend. Market price per
share on that date will be the closing price for such shares on
the Nasdaq Global Select Market or, if no sale is reported for
such day, at the average of their reported bid and asked prices.
The number of shares of our common stock to be outstanding after
giving effect to payment of the dividend cannot be established
until the value per share at which additional shares will be
issued has been determined and elections of our stockholders
have been tabulated.
There will be no brokerage charges or other charges for dividend
reinvestment to stockholders who participate in the plan. We
will pay the plan administrators fees under the plan.
Stockholders who receive dividends in the form of stock
generally are subject to the same federal, state and local tax
consequences as are stockholders who elect to receive their
dividends in cash. A stockholders basis for determining
gain or loss upon the sale of stock received in a dividend from
us will be equal to the total dollar amount of the dividend
payable to the stockholder. Any stock received in a dividend
will have a holding period for tax purposes commencing on the
day following the day on which the shares are credited to the
U.S. stockholders account.
Participants may terminate their accounts under the plan by
notifying the plan administrator via its website at
www.amstock.com, by filling out the transaction request
form located at the bottom of their statement and sending it to
the plan administrator at 59 Maiden Lane New York, New York
10038 or by calling the plan administrators at
(212) 936-5100.
We may terminate the plan upon notice in writing mailed to each
participant at least 30 days prior to any record date for
the payment of any dividend by us. All correspondence concerning
the plan should be directed to the plan administrator by mail at
59 Maiden Lane New York, New York 10038 or by telephone at
(212) 936-5100.
85
DESCRIPTION
OF CAPITAL STOCK
The following description is based on relevant portions of
the Maryland General Corporation Law and on our articles of
incorporation and bylaws. This summary may not contain all of
the information that is important to you, and we refer you to
the Maryland General Corporation Law and our articles of
incorporation and bylaws for a more detailed description of the
provisions summarized below.
Capital
Stock
Under the terms of our articles of incorporation, our authorized
capital stock consists of 150,000,000 shares of common
stock, par value $0.01 per share, of which 9,054,931 shares
were outstanding as of April 22, 2009. Under our articles
of incorporation, our Board of Directors is authorized to
classify and reclassify any unissued shares of stock into other
classes or series of stock, and to cause the issuance of such
shares, without obtaining stockholder approval. In addition, as
permitted by the Maryland General Corporation Law, but subject
to the 1940 Act, our articles of incorporation provide that the
Board of Directors, without any action by our stockholders, may
amend the articles of incorporation from time to time to
increase or decrease the aggregate number of shares of stock or
the number of shares of stock of any class or series that we
have authority to issue. Under Maryland law, our stockholders
generally are not personally liable for our debts or obligations.
Common
Stock
All shares of our common stock have equal voting rights and
rights to earnings, assets and distributions, except as
described below. When shares are issued, upon payment therefor,
they will be duly authorized, validly issued, fully paid and
nonassessable. Distributions may be paid to the holders of our
common stock if, as and when authorized by our Board of
Directors and declared by us out of assets legally available
therefore. Shares of our common stock have no conversion,
exchange, preemptive or redemption rights. In the event of our
liquidation, dissolution or winding up, each share of our common
stock would be entitled to share ratably in all of our assets
that are legally available for distribution after we pay all
debts and other liabilities and subject to any preferential
rights of holders of our preferred stock, if any preferred stock
is outstanding at such time. Each share of our common stock is
entitled to one vote on all matters submitted to a vote of
stockholders, including the election of directors. Except as
provided with respect to any other class or series of stock, the
holders of our common stock will possess exclusive voting power.
There is no cumulative voting in the election of directors,
which means that holders of a majority of the outstanding shares
of common stock will elect all of our directors, and holders of
less than a majority of such shares will be unable to elect any
director.
Preferred
Stock
Our articles of incorporation authorize our Board of Directors
to classify and reclassify any unissued shares of stock into
other classes or series of stock, including preferred stock.
Prior to issuance of shares of each class or series, the Board
of Directors is required by Maryland law and by our articles of
incorporation to set the terms, preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends
or other distributions, qualifications and terms or conditions
of redemption for each class or series. Thus, the Board of
Directors could authorize the issuance of shares of preferred
stock with terms and conditions which could have the effect of
delaying, deferring or preventing a transaction or a change in
control that might involve a premium price for holders of our
common stock or otherwise be in their best interest. You should
note, however, that any issuance of preferred stock must comply
with the requirements of the 1940 Act. The 1940 Act requires,
among other things, that (1) immediately after issuance and
before any dividend or other distribution is made with respect
to our common stock and before any purchase of common stock is
made, such preferred stock together with all other senior
securities must not exceed an amount equal to 50.0% of our total
assets after deducting the amount of such dividend, distribution
or purchase price, as the case may be, and (2) the holders
of shares of preferred stock, if any are issued, must be
entitled as a class to elect two directors at all times and to
elect a majority of the directors if distributions on such
preferred stock are in arrears by two years or more. Certain
matters under the 1940 Act require the separate vote of the
holders of
86
any issued and outstanding preferred stock. We believe that the
availability for issuance of preferred stock will provide us
with increased flexibility in structuring future financings and
acquisitions.
Limitation
on Liability of Directors and Officers; Indemnification and
Advance of Expenses
Maryland law permits a Maryland corporation to include in its
articles of incorporation a provision limiting the liability of
its directors and officers to the corporation and its
stockholders for money damages except for liability resulting
from (a) actual receipt of an improper benefit or profit in
money, property or services or (b) active and deliberate
dishonesty established by a final judgment as being material to
the cause of action. Our articles of incorporation contain such
a provision that eliminates directors and officers
liability to the maximum extent permitted by Maryland law,
subject to the requirements of the Investment Company Act of
1940, as amended (the 1940 Act).
Our articles of incorporation require us, to the maximum extent
permitted by Maryland law and subject to the requirements of the
1940 Act, to indemnify any present or former director or officer
or any individual who, while a director or officer and at our
request, serves or has served another corporation, real estate
investment trust, partnership, joint venture, trust, employee
benefit plan or other enterprise as a director, officer, partner
or trustee, from and against any claim or liability to which
such person may become subject or which such person may incur by
reason of his or her service in any such capacity, except with
respect to any matter as to which such person shall have been
finally adjudicated in any proceeding not to have acted in good
faith in the reasonable belief that his or her action was in our
best interest or to be liable to us or our stockholders by
reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of such
persons office.
Our bylaws obligate us, to the maximum extent permitted by
Maryland law and subject to the requirements of the 1940 Act, to
indemnify any present or former director or officer or any
individual who, while a director or officer and at our request,
serves or has served another corporation, real estate investment
trust, partnership, joint venture, trust, employee benefit plan
or other enterprise as a director, officer, partner or trustee
and who is made, or threatened to be made, a party to a
proceeding by reason of his or her service in any such capacity
from and against any claim or liability to which that person may
become subject or which that person may incur by reason of his
or her service in any such capacity, except with respect to any
matter as to which such person shall have been finally
adjudicated in any proceeding not to have acted in good faith in
the reasonable belief that his or her action was in our best
interest or to be liable to us or our stockholders by reason of
willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such
persons office. Our bylaws also require that, to the
maximum extent permitted by Maryland law, we may pay certain
expenses incurred by any such indemnified person in advance of
the final disposition of a proceeding upon receipt of an
undertaking by or on behalf of such indemnified person to repay
amounts we have so paid if it is ultimately determined that
indemnification of such expenses is not authorized under our
bylaws.
Maryland law requires a corporation (unless its articles of
incorporation provide otherwise, which our articles of
incorporation do not) to indemnify a director or officer who has
been successful in the defense of any proceeding to which he or
she is made, or threatened to be made, a party by reason of his
or her service in that capacity. Maryland law permits a
corporation to indemnify its present and former directors and
officers, among others, against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in
connection with any proceeding to which they may be made, or
threatened to be made, a party by reason of his or her service
in those or other capacities unless it is established that
(a) the act or omission of the director or officer was
material to the matter giving rise to the proceeding and
(1) was committed in bad faith or (2) was the result
of active and deliberate dishonesty, (b) the director or
officer actually received an improper personal benefit in money,
property or services or (c) in the case of any criminal
proceeding, the director or officer had reasonable cause to
believe that the act or omission was unlawful. However, under
Maryland law, a Maryland corporation may not indemnify for an
adverse judgment in a suit by or in the right of the corporation
or for a judgment of liability on the basis that a personal
benefit was improperly received, unless in either case a court
orders indemnification, and then only for expenses. In addition,
Maryland law permits a corporation to advance reasonable
expenses to a director or officer upon the corporations
receipt of
87
(a) a written affirmation by the director or officer of his
or her good faith belief that he or she has met the standard of
conduct necessary for indemnification by the corporation and
(b) a written undertaking by him or her or on his or her
behalf to repay the amount paid or reimbursed by the corporation
if it is ultimately determined that the standard of conduct was
not met.
In addition, we have entered into Indemnity Agreements with our
directors and executive officers. The Indemnity Agreements
generally provide that we will, to the extent specified in the
agreements and to the fullest extent permitted by the 1940 Act
and Maryland law as in effect on the day the agreement is
executed, indemnify and advance expenses to each indemnitee that
is, or is threatened to be made, a party to or a witness in any
civil, criminal or administrative proceeding. We will indemnify
the indemnitee against all expenses, judgments, fines, penalties
and amounts paid in settlement actually and reasonably incurred
in connection with any such proceeding unless it is established
that (i) the act or omission of the indemnitee was material
to the matter giving rise to the proceeding and (a) was
committed in bad faith or (b) was the result of active and
deliberate dishonesty, (ii) the indemnitee actually
received an improper personal benefit, or (iii) in the case
of a criminal proceeding, the indemnitee had reasonable cause to
believe his conduct was unlawful. Additionally, for so long as
we are subject to the 1940 Act, no advancement of expenses will
be made until (i) the indemnitee provides a security for
his undertaking, (ii) we are insured against losses arising
by reason of any lawful advances, or (iii) the majority of
a quorum of our disinterested directors, or independent counsel
in a written opinion, determine based on a review of readily
available facts that there is reason to believe that the
indemnitee ultimately will be found entitled to indemnification.
The Indemnity Agreements also provide that if the
indemnification rights provided for therein are unavailable for
any reason, we will pay, in the first instance, the entire
amount incurred by the indemnitee in connection with any covered
proceeding and waive and relinquish any right of contribution we
may have against the indemnitee. The rights provided by the
Indemnity Agreements are in addition to any other rights to
indemnification or advancement of expenses to which the
indemnitee may be entitled under applicable law, our articles of
incorporation, our bylaws, any agreement, a vote of stockholders
or a resolution of directors, or otherwise. No amendment or
repeal of the Indemnity Agreements will limit or restrict any
right of the indemnitee in respect of any action taken or
omitted by the indemnitee prior to such amendment or repeal. The
Indemnity Agreements will terminate upon the later of
(i) ten years after the date the indemnitee has ceased to
serve as our director or officer, or (ii) one year after
the final termination of any proceeding for which the indemnitee
is granted rights of indemnification or advancement of expenses
or which is brought by the indemnitee. The above description of
the Indemnity Agreements is subject to, and is qualified in its
entirety by reference to, all the provisions of the form of
Indemnity Agreement.
We have obtained primary and excess insurance policies insuring
our directors and officers against certain liabilities they may
incur in their capacity as directors and officers. Under such
policies, the insurer, on our behalf, may also pay amounts for
which we have granted indemnification to the directors or
officers.
Provisions
of the Maryland General Corporation Law and Our Articles of
Incorporation and Bylaws
The Maryland General Corporation Law and our articles of
incorporation and bylaws contain provisions that could make it
more difficult for a potential acquiror to acquire us by means
of a tender offer, proxy contest or otherwise. These provisions
are expected to discourage certain coercive takeover practices
and inadequate takeover bids and to encourage persons seeking to
acquire control of us to negotiate first with our Board of
Directors. We believe that the benefits of these provisions
outweigh the potential disadvantages of discouraging any such
acquisition proposals because, among other things, the
negotiation of such proposals may improve their terms.
Election
of Directors
Our bylaws currently provide that directors are elected by a
plurality of the votes cast in the election of directors.
Pursuant to our articles of incorporation and bylaws, our Board
of Directors may amend the bylaws to alter the vote required to
elect directors.
88
Number
of Directors; Vacancies; Removal
Our articles of incorporation provide that the number of
directors will be set only by the Board of Directors in
accordance with our bylaws. Our bylaws provide that a majority
of our entire Board of Directors may at any time increase or
decrease the number of directors. However, unless the bylaws are
amended, the number of directors may never be less than one or
more than twelve. We have elected to be subject to the provision
of Subtitle 8 of Title 3 of the Maryland General
Corporation Law regarding the filling of vacancies on the Board
of Directors. Accordingly, at such time, except as may be
provided by the Board of Directors in setting the terms of any
class or series of preferred stock, any and all vacancies on the
Board of Directors may be filled only by the affirmative vote of
a majority of the remaining directors in office, even if the
remaining directors do not constitute a quorum, and any director
elected to fill a vacancy shall serve for the remainder of the
full term of the directorship in which the vacancy occurred and
until a successor is elected and qualifies, subject to any
applicable requirements of the 1940 Act. Our articles of
incorporation provide that a director may be removed only for
cause, as defined in the articles of incorporation, and then
only by the affirmative vote of at least two-thirds of the votes
entitled to be cast in the election of directors.
Action
by Stockholders
Under the Maryland General Corporation Law, stockholder action
may be taken only at an annual or special meeting of
stockholders or by unanimous consent in lieu of a meeting
(unless the articles of incorporation provide for stockholder
action by less than unanimous written consent, which our
articles of incorporation do not). These provisions, combined
with the requirements of our bylaws regarding the calling of a
stockholder-requested special meeting of stockholders discussed
below, may have the effect of delaying consideration of a
stockholder proposal until the next annual meeting.
Advance
Notice Provisions for Stockholder Nominations and Stockholder
Proposals
Our bylaws provide that with respect to an annual meeting of
stockholders, nominations of persons for election to the Board
of Directors and the proposal of business to be considered by
stockholders may be made only (1) pursuant to our notice of
the meeting, (2) by the Board of Directors or (3) by a
stockholder who is entitled to vote at the meeting and who has
complied with the advance notice procedures of the bylaws. With
respect to special meetings of stockholders, only the business
specified in our notice of the meeting may be brought before the
meeting. Nominations of persons for election to the Board of
Directors at a special meeting may be made only
(1) pursuant to our notice of the meeting, (2) by the
Board of Directors or (3) provided that the Board of
Directors has determined that directors will be elected at the
meeting, by a stockholder who is entitled to vote at the meeting
and who has complied with the advance notice provisions of the
bylaws.
The purpose of requiring stockholders to give us advance notice
of nominations and other business is to afford our Board of
Directors a meaningful opportunity to consider the
qualifications of the proposed nominees and the advisability of
any other proposed business and, to the extent deemed necessary
or desirable by our Board of Directors, to inform stockholders
and make recommendations about such qualifications or business,
as well as to provide a more orderly procedure for conducting
meetings of stockholders. Although our bylaws do not give our
Board of Directors any power to disapprove stockholder
nominations for the election of directors or proposals
recommending certain action, they may have the effect of
precluding a contest for the election of directors or the
consideration of stockholder proposals if proper procedures are
not followed and of discouraging or deterring a third party from
conducting a solicitation of proxies to elect its own slate of
directors or to approve its own proposal without regard to
whether consideration of such nominees or proposals might be
harmful or beneficial to us and our stockholders.
Calling
of Special Meeting of Stockholders
Our bylaws provide that special meetings of stockholders may be
called by our Board of Directors and certain of our officers.
Additionally, our bylaws provide that, subject to the
satisfaction of certain procedural and informational
requirements by the stockholders requesting the meeting, a
special meeting of stockholders
89
shall be called by our secretary upon the written request of
stockholders entitled to cast not less than a majority of all of
the votes entitled to be cast at such meeting.
Approval
of Extraordinary Corporate Action; Amendment of Articles of
Incorporation and Bylaws
Under Maryland law, a Maryland corporation generally cannot
dissolve, amend its articles of incorporation, merge, sell all
or substantially all of its assets, engage in a share exchange
or engage in similar transactions outside the ordinary course of
business, unless approved by the affirmative vote of
stockholders entitled to cast at least two-thirds of the votes
entitled to be cast on the matter. However, a Maryland
corporation may provide in its articles of incorporation for
approval of these matters by a lesser percentage, but not less
than a majority of all of the votes entitled to be cast on the
matter. Our articles of incorporation generally provide for
approval of amendments to our articles of incorporation and
extraordinary transactions by the stockholders entitled to cast
at least a majority of the votes entitled to be cast on the
matter. Our articles of incorporation also provide that certain
amendments and any proposal for our conversion, whether by
merger or otherwise, from a closed-end company to an open-end
company or any proposal for our liquidation or dissolution
requires the approval of the stockholders entitled to cast at
least 75.0% of the votes entitled to be cast on such matter.
However, if such amendment or proposal is approved by at least
75.0% of our continuing directors (in addition to approval by
our Board of Directors), such amendment or proposal may be
approved by the stockholders entitled to cast a majority of the
votes entitled to be cast on such a matter. The continuing
directors are defined in our articles of incorporation as
our current directors, as well as those directors whose
nomination for election by the stockholders or whose election by
the directors to fill vacancies is approved by a majority of the
continuing directors then on the Board of Directors.
Our articles of incorporation and bylaws provide that the Board
of Directors will have the exclusive power to make, alter, amend
or repeal any provision of our bylaws.
No
Appraisal Rights
Except with respect to appraisal rights arising in connection
with the Maryland Control Share Acquisition Act, or Control
Share Act, discussed below, as permitted by the Maryland General
Corporation Law, our articles of incorporation provide that
stockholders will not be entitled to exercise appraisal rights.
Control
Share Acquisitions
The Control Share Act provides that control shares of a Maryland
corporation acquired in a control share acquisition have no
voting rights except to the extent approved by a vote of
two-thirds of the votes entitled to be cast on the matter.
Shares owned by the acquiror, by officers or by directors who
are employees of the corporation are excluded from shares
entitled to vote on the matter. Control shares are voting shares
of stock which, if aggregated with all other shares of stock
owned by the acquiror or in respect of which the acquiror is
able to exercise or direct the exercise of voting power (except
solely by virtue of a revocable proxy), would entitle the
acquiror to exercise voting power in electing directors within
one of the following ranges of voting power:
|
|
|
|
|
one-tenth but less than one-third;
|
|
|
|
one-third or more but less than a majority; or
|
|
|
|
a majority or more of all voting power.
|
The requisite stockholder approval must be obtained each time an
acquiror crosses one of the thresholds of voting power set forth
above. Control shares do not include shares the acquiring person
is then entitled to vote as a result of having previously
obtained stockholder approval. A control share acquisition means
the acquisition of control shares, subject to certain exceptions.
A person who has made or proposes to make a control share
acquisition may compel the board of directors of the corporation
to call a special meeting of stockholders to be held within
50 days of demand to consider the voting rights of the
shares. The right to compel the calling of a special meeting is
subject to the
90
satisfaction of certain conditions, including an undertaking to
pay the expenses of the meeting. If no request for a meeting is
made, the corporation may itself present the question at any
stockholders meeting.
If voting rights are not approved at the meeting or if the
acquiring person does not deliver an acquiring person statement
as required by the statute, then the corporation may repurchase
for fair value any or all of the control shares, except those
for which voting rights have previously been approved. The right
of the corporation to repurchase control shares is subject to
certain conditions and limitations. Fair value is determined,
without regard to the absence of voting rights for the control
shares, as of the date of the last control share acquisition by
the acquiror or of any meeting of stockholders at which the
voting rights of the shares are considered and not approved. If
voting rights for control shares are approved at a stockholders
meeting and the acquiror becomes entitled to vote a majority of
the shares entitled to vote, all other stockholders may exercise
appraisal rights. The fair value of the shares as determined for
purposes of appraisal rights may not be less than the highest
price per share paid by the acquiror in the control share
acquisition.
The Control Share Act does not apply (a) to shares acquired
in a merger, consolidation or share exchange if the corporation
is a party to the transaction or (b) to acquisitions
approved or exempted by the articles of incorporation or bylaws
of the corporation.
Our bylaws contain a provision exempting from the Control Share
Act any and all acquisitions by any person of our shares of
stock. There can be no assurance that such provision will not be
otherwise amended or eliminated at any time in the future.
However, we will amend our bylaws to be subject to the Control
Share Act only if the Board of Directors determines that it
would be in our best interests and if the staff of the SEC does
not object to our determination that our being subject to the
Control Share Act does not conflict with the 1940 Act.
Business
Combinations
Under the Maryland Business Combination Act, or the Business
Combination Act, business combinations between a
Maryland corporation and an interested stockholder or an
affiliate of an interested stockholder are prohibited for five
years after the most recent date on which the interested
stockholder becomes an interested stockholder. These business
combinations include a merger, consolidation, share exchange or,
in circumstances specified in the statute, an asset transfer or
issuance or reclassification of equity securities. An interested
stockholder is defined as:
|
|
|
|
|
any person who beneficially owns 10.0% or more of the voting
power of the corporations shares; or
|
|
|
|
an affiliate or associate of the corporation who, at any time
within the two-year period prior to the date in question, was
the beneficial owner of 10.0% or more of the voting power of the
then outstanding voting stock of the corporation.
|
A person is not an interested stockholder under this statute if
the board of directors approved in advance the transaction by
which such stockholder otherwise would have become an interested
stockholder. However, in approving a transaction, the board of
directors may provide that its approval is subject to
compliance, at or after the time of approval, with any terms and
conditions determined by the board.
After the five-year prohibition, any business combination
between the Maryland corporation and an interested stockholder
generally must be recommended by the board of directors of the
corporation and approved by the affirmative vote of at least:
|
|
|
|
|
80.0% of the votes entitled to be cast by holders of outstanding
shares of voting stock of the corporation; and
|
|
|
|
two-thirds of the votes entitled to be cast by holders of voting
stock of the corporation other than shares held by the
interested stockholder with whom or with whose affiliate the
business combination is to be effected or held by an affiliate
or associate of the interested stockholder.
|
91
These super-majority vote requirements do not apply if the
corporations common stockholders receive a minimum price,
as defined under Maryland law, for their shares in the form of
cash or other consideration in the same form as previously paid
by the interested stockholder for its shares.
The statute permits various exemptions from its provisions,
including business combinations that are exempted by the board
of directors before the time that the interested stockholder
becomes an interested stockholder. Our Board of Directors has
adopted a resolution exempting any business combination between
us and any other person from the provisions of the Business
Combination Act, provided that the business combination is first
approved by the Board of Directors, including a majority of the
directors who are not interested persons as defined in the 1940
Act. This resolution, however, may be altered or repealed in
whole or in part at any time. If these resolutions are repealed,
or the Board of Directors does not otherwise approve a business
combination, the statute may discourage others from trying to
acquire control of us and increase the difficulty of
consummating any offer.
Conflict
with 1940 Act
Our bylaws provide that, if and to the extent that any provision
of the Maryland General Corporation Law, or any provision of our
articles of incorporation or bylaws conflicts with any provision
of the 1940 Act, the applicable provision of the 1940 Act will
control.
MATERIAL
U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a general summary of the material
U.S. federal income tax considerations applicable to us and
to an investment in our shares. This summary does not purport to
be a complete description of the income tax considerations
applicable to such an investment. For example, we have not
described tax consequences that may be relevant to certain types
of holders subject to special treatment under U.S. federal
income tax laws, including stockholders subject to the
alternative minimum tax, tax-exempt organizations, insurance
companies, dealers in securities, pension plans and trusts, and
financial institutions. This summary assumes that investors hold
our common stock as capital assets (within the meaning of the
Code). The discussion is based upon the Code, Treasury
regulations, and administrative and judicial interpretations,
each as of the date of this prospectus and all of which are
subject to change, possibly retroactively, which could affect
the continuing validity of this discussion. We have not sought
and will not seek any ruling from the Internal Revenue Service
regarding this offering. This summary does not discuss any
aspects of U.S. estate or gift tax or foreign, state or
local tax. It does not discuss the special treatment under
U.S. federal income tax laws that could result if we
invested in tax-exempt securities or certain other investment
assets.
A U.S. stockholder generally is a beneficial
owner of shares of our common stock who is for U.S. federal
income tax purposes:
|
|
|
|
|
A citizen or individual resident of the United States;
|
|
|
|
A corporation or other entity treated as a corporation, for
U.S. federal income tax purposes, created or organized in
or under the laws of the United States or any political
subdivision thereof;
|
|
|
|
A trust if a court within the United States is asked to exercise
primary supervision over the administration of the trust and one
or more United States persons have the authority to control all
substantive decisions of the trust; or
|
|
|
|
A trust or an estate, the income of which is subject to
U.S. federal income taxation regardless of its source.
|
A
Non-U.S. stockholder
generally is a beneficial owner of shares of our common stock
that is not a U.S. stockholder.
If a partnership (including an entity treated as a partnership
for U.S. federal income tax purposes) holds shares of our
common stock, the tax treatment of a partner in the partnership
will generally depend upon the status of the partner and the
activities of the partnership. A prospective stockholder that is
a partner of a partnership holding shares of our common stock
should consult his, her or its tax advisers with respect to the
purchase, ownership and disposition of shares of our common
stock.
92
Tax matters are very complicated and the tax consequences to an
investor of an investment in our shares will depend on the facts
of his, her or its particular situation. We encourage investors
to consult their own tax advisers regarding the specific
consequences of such an investment, including tax reporting
requirements, the applicability of federal, state, local and
foreign tax laws, eligibility for the benefits of any applicable
tax treaty and the effect of any possible changes in the tax
laws.
Election
to be Taxed as a Regulated Investment Company
MSCC has elected to be treated for federal income tax purposes
as a RIC under Subchapter M of the Code Commencing
October 2, 2007. As a RIC, we generally do not have to pay
corporate-level federal income taxes on any income that we
distribute to our stockholders as dividends. To qualify as a
RIC, we must, among other things, meet certain
source-of-income
and asset diversification requirements (as described below). In
addition, in order to maintain RIC tax treatment, we must
distribute to our stockholders, for each taxable year, at least
90% of our investment company taxable income, which
is generally our net ordinary income plus the excess of realized
net short-term capital gains over realized net long-term capital
losses, subject to carrying forward taxable income for payment
in the following year and paying a 4.0% excise tax as described
below (the Annual Distribution Requirement).
Taxation
as a Regulated Investment Company
For any taxable year in which we qualify as a RIC and satisfy
the Annual Distribution Requirement, then we will not be subject
to federal income tax on the portion of our income we distribute
(or are deemed to distribute) to stockholders. We will be
subject to U.S. federal income tax at the regular corporate
rates on any income or capital gains not distributed (or deemed
distributed) to our stockholders.
We will be subject to a 4% nondeductible federal excise tax on
certain undistributed income unless we distribute in a timely
manner an amount at least equal to the sum of (1) 98% of
our net ordinary income and capital gain net income for each
calendar year, and (2) any income recognized, but not
distributed, in preceding years (the Excise Tax Avoidance
Requirement). Dividends declared and paid by us in a year
will generally differ from taxable income for that year as such
dividends may include the distribution of current year taxable
income, less amounts carried over into the following year, and
the distribution of prior year taxable income carried over into
and distributed in the current year. For amounts we carry over
into the following year, we will be required to pay the 4%
excise tax based on 98% of our annual taxable income in excess
of distributions for the year.
In order to qualify as a RIC for federal income tax purposes, we
must, among other things:
|
|
|
|
|
continue to qualify as a BDC under the 1940 Act at all times
during each taxable year;
|
|
|
|
derive in each taxable year at least 90% of our gross income
from dividends, interest, payments with respect to certain
securities, loans, gains from the sale of stock or other
securities, net income from certain qualified publicly
traded partnerships, or other income derived with respect
to our business of investing in such stock or securities (the
90% Income Test); and
|
|
|
|
diversify our holdings so that at the end of each quarter of the
taxable year:
|
|
|
|
|
|
at least 50% of the value of our assets consists of cash, cash
equivalents, U.S. Government securities, securities of
other RICs, and other securities if such other securities of any
one issuer do not represent more than 5% of the value of our
assets or more than 10% of the outstanding voting securities of
the issuer; and
|
|
|
|
no more than 25% of the value of our assets is invested in the
securities, other than U.S. government securities or
securities of other RICs, of one issuer, of two or more issuers
that are controlled, as determined under applicable Code rules,
by us and that are engaged in the same or similar or related
trades or businesses or of certain qualified publicly
traded partnerships (collectively, the
Diversification Tests).
|
93
In order to comply with the 90% Income Test, we formed MSEI, a
wholly-owned subsidiary of MSCC, for the primary purpose of
permitting us to own equity interests in portfolio companies
which are pass through entities for tax purposes.
Absent MSEI, a portion of the gross income from such portfolio
companies would flow directly to us for purposes of the 90%
Income Test. To the extent such income did not consist of
investment income, it could jeopardize our ability to qualify as
a RIC and, therefore cause us to incur significant federal
income taxes. MSEI is consolidated with Main Street for
generally accepted accounting principles in the United States,
or U.S. GAAP purposes, and the portfolio investments held
by MSEI are included in our consolidated financial statements.
MSEI is not consolidated with Main Street for income tax
purposes and may generate income tax expense as a result of its
ownership of the portfolio investments. This income tax expense,
if any, is reflected in our Consolidated Statement of Operations.
We may be required to recognize taxable income in circumstances
in which we do not receive cash. For example, if we hold debt
obligations that are treated under applicable tax rules as
having original issue discount (such as debt instruments issued
with warrants), we must include in income each year a portion of
the original issue discount that accrues over the life of the
obligation, regardless of whether cash representing such income
is received by us in the same taxable year. We may also have to
include in income other amounts that we have not yet received in
cash, such as PIK interest and deferred loan origination fees
that are paid after origination of the loan or are paid in
non-cash compensation such as warrants or stock. Because any
original issue discount or other amounts accrued will be
included in our investment company taxable income for the year
of accrual, we may be required to make a distribution to our
stockholders in order to satisfy the Annual Distribution
Requirement, even though we will not have received any
corresponding cash amount.
Although we do not presently expect to do so, we are authorized
to borrow funds and to sell assets in order to satisfy
distribution requirements. However, under the 1940 Act, we are
not permitted to make distributions to our stockholders in
certain circumstances while our debt obligations and other
senior securities are outstanding unless certain asset
coverage tests are met. See Regulation
Regulation as a Business Development Company Senior
Securities. Moreover, our ability to dispose of assets to
meet our distribution requirements may be limited by
(1) the illiquid nature of our portfolio
and/or
(2) other requirements relating to our status as a RIC,
including the Diversification Tests. If we dispose of assets in
order to meet the Annual Distribution Requirement or the Excise
Tax Avoidance Requirement, we may make such dispositions at
times that, from an investment standpoint, are not advantageous.
Pursuant to a recent revenue procedure issued by the Internal
Revenue Service, or the IRS, the IRS has indicated that it will
treat distributions from certain publicly traded RICs (including
business development companies) that are paid part in cash and
part in stock as dividends that would satisfy the RICs
annual distribution requirements. In order to qualify for such
treatment, the revenue procedure requires that at least 10% of
the total distribution be paid in cash and that each stockholder
have a right to elect to receive its entire distribution in
cash. If too many stockholders elect to receive cash, each
stockholder electing to receive cash must receive a
proportionate share of the cash to be distributed (although no
stockholder electing to receive cash may receive less than 10%
of such stockholders distribution in cash). This revenue
procedure applies to distributions made with respect to taxable
years ending prior to January 1, 2010.
The remainder of this discussion assumes that we qualify as a
RIC and have satisfied the Annual Distribution Requirement.
Taxation
of U.S. Stockholders
Distributions by us generally are taxable to
U.S. stockholders as ordinary income or capital gains.
Distributions of our investment company taxable
income (which is, generally, our net ordinary income plus
realized net short-term capital gains in excess of realized net
long-term capital losses) will be taxable as ordinary income to
U.S. stockholders to the extent of our current or
accumulated earnings and profits, whether paid in cash or
reinvested in additional common stock. To the extent such
distributions paid by us to non-corporate stockholders
(including individuals) are attributable to dividends from
U.S. corporations and certain qualified foreign
corporations, such distributions (Qualifying
Dividends) may be eligible for a maximum tax rate of
15.0%. In this regard, it is anticipated that distributions paid
by us will generally not be attributable to dividends and,
therefore, generally
94
will not qualify for the 15.0% maximum rate applicable to
Qualifying Dividends. Distributions of our net capital gains
(which is generally our realized net long-term capital gains in
excess of realized net short-term capital losses) properly
designated by us as capital gain dividends will be
taxable to a U.S. stockholder as long-term capital gains
that are currently taxable at a maximum rate of 15.0% in the
case of individuals, trusts or estates, regardless of the
U.S. stockholders holding period for his, her or its
common stock and regardless of whether paid in cash or
reinvested in additional common stock. Distributions in excess
of our earnings and profits first will reduce a
U.S. stockholders adjusted tax basis in such
stockholders common stock and, after the adjusted basis is
reduced to zero, will constitute capital gains to such
U.S. stockholder.
We may retain some or all of our realized net long-term capital
gains in excess of realized net short-term capital losses, but
to designate the retained net capital gain as a deemed
distribution. In that case, among other consequences, we
will pay tax on the retained amount, each U.S. stockholder
will be required to include his, her or its share of the deemed
distribution in income as if it had been actually distributed to
the U.S. stockholder, and the U.S. stockholder will be
entitled to claim a credit equal to his, her or its allocable
share of the tax paid thereon by us. Because we expect to pay
tax on any retained capital gains at our regular corporate tax
rate, and because that rate is in excess of the maximum rate
currently payable by individuals on long-term capital gains, the
amount of tax that individual U.S. stockholders will be
treated as having paid will exceed the tax they owe on the
capital gain distribution and such excess generally may be
refunded or claimed as a credit against the
U.S. stockholders other U.S. federal income tax
obligations. The amount of the deemed distribution net of such
tax will be added to the U.S. stockholders cost basis
for his, her or its common stock. In order to utilize the deemed
distribution approach, we must provide written notice to our
stockholders prior to the expiration of 60 days after the
close of the relevant taxable year. We cannot treat any of our
investment company taxable income as a deemed
distribution.
In any fiscal year, we may elect to make distributions to our
stockholders in excess of our taxable earnings for that fiscal
year. As a result, a portion of those distributions may be
deemed a return of capital to our stockholders.
For purposes of determining (1) whether the Annual
Distribution Requirement is satisfied for any year and
(2) the amount of capital gain dividends paid for that
year, we may, under certain circumstances, elect to treat a
dividend that is paid during the following taxable year as if it
had been paid during the taxable year in question. If we make
such an election, the U.S. stockholder will still be
treated as receiving the dividend in the taxable year in which
the distribution is made. However, any dividend declared by us
in October, November or December of any calendar year, payable
to stockholders of record on a specified date in such a month
and actually paid during January of the following year, will be
treated as if it had been received by our U.S. stockholders
on December 31 of the year in which the dividend was declared.
If an investor purchases shares of our common stock shortly
before the record date of a distribution, the price of the
shares will include the value of the distribution and the
investor will be subject to tax on the distribution even though
economically it may represent a return of his, her or its
investment.
A stockholder generally will recognize taxable gain or loss if
the stockholder sells or otherwise disposes of his, her or its
shares of our common stock. The amount of gain or loss will be
measured by the difference between such stockholders
adjusted tax basis in the common stock sold and the amount of
the proceeds received in exchange. Any gain arising from such
sale or disposition generally will be treated as long-term
capital gain or loss if the stockholder has held his, her or its
shares for more than one year. Otherwise, it will be classified
as short-term capital gain or loss. However, any capital loss
arising from the sale or disposition of shares of our common
stock held for six months or less will be treated as long-term
capital loss to the extent of the amount of capital gain
dividends received, or undistributed capital gain deemed
received, with respect to such shares. In addition, all or a
portion of any loss recognized upon a disposition of shares of
our common stock may be disallowed if other shares of our common
stock are purchased (whether through reinvestment of
distributions or otherwise) within 30 days before or after
the disposition.
95
In general, individual U.S. stockholders currently are
subject to a maximum federal income tax rate of 15.0% on their
net capital gain (i.e., the excess of realized net long-term
capital gains over realized net short-term capital losses),
including any long-term capital gain derived from an investment
in our shares. Such rate is lower than the maximum rate on
ordinary income currently payable by individuals. Corporate
U.S. stockholders currently are subject to federal income
tax on net capital gain at the maximum 35.0% rate also applied
to ordinary income. Non-corporate stockholders with net capital
losses for a year (i.e., capital losses in excess of capital
gains) generally may deduct up to $3,000 of such losses against
their ordinary income each year; any net capital losses of a
non-corporate stockholder in excess of $3,000 generally may be
carried forward and used in subsequent years as provided in the
Code. Corporate stockholders generally may not deduct any net
capital losses for a year, but may carryback such losses for
three years or carry forward such losses for five years.
We will send to each of our U.S. stockholders, as promptly
as possible after the end of each calendar year, a notice
detailing, on a per share and per distribution basis, the
amounts includible in such U.S. stockholders taxable
income for such year as ordinary income and as long-term capital
gain. In addition, the federal tax status of each years
distributions generally will be reported to the Internal Revenue
Service (including the amount of dividends, if any, eligible for
the 15.0% maximum rate). Dividends paid by us generally will not
be eligible for the dividends-received deduction or the
preferential tax rate applicable to Qualifying Dividends because
our income generally will not consist of dividends.
Distributions may also be subject to additional state, local and
foreign taxes depending on a U.S. stockholders
particular situation.
As a RIC, we will be subject to the alternative minimum tax
(AMT), but any items that are treated differently
for AMT purposes must be apportioned between us and our
stockholders and this may affect the stockholders AMT
liabilities. Although regulations explaining the precise method
of apportionment have not yet been issued by the Internal
Revenue Service, we intend in general to apportion these items
in the same proportion that dividends paid to each stockholder
bear to our taxable income (determined without regard to the
dividends paid deduction), unless we determine that a different
method for a particular item is warranted under the
circumstances.
We may be required to withhold federal income tax (backup
withholding) currently at a rate of 28.0% from all taxable
distributions to any non-corporate U.S. stockholder
(1) who fails to furnish us with a correct taxpayer
identification number or a certificate that such stockholder is
exempt from backup withholding or (2) with respect to whom
the IRS notifies us that such stockholder has failed to properly
report certain interest and dividend income to the IRS and to
respond to notices to that effect. An individuals taxpayer
identification number is his or her social security number. Any
amount withheld under backup withholding is allowed as a credit
against the U.S. stockholders federal income tax
liability, provided that proper information is provided to the
IRS.
Taxation
of Non-U.S.
Stockholders
Whether an investment in the shares is appropriate for a
Non-U.S. stockholder
will depend upon that persons particular circumstances. An
investment in the shares by a
Non-U.S. stockholder
may have adverse tax consequences.
Non-U.S. stockholders
should consult their tax advisers before investing in our common
stock.
Distributions of our investment company taxable
income to
Non-U.S. stockholders
(including interest income and realized net short-term capital
gains in excess of realized long-term capital losses, which
generally would be free of withholding if paid to
Non-U.S. stockholders
directly) will be subject to withholding of federal tax at a
30.0% rate (or lower rate provided by an applicable treaty) to
the extent of our current and accumulated earnings and profits
unless an applicable exception applies. If the distributions are
effectively connected with a U.S. trade or business of the
Non-U.S. stockholder,
and, if an income tax treaty applies, attributable to a
permanent establishment in the United States, we will not be
required to withhold federal tax if the
Non-U.S. stockholder
complies with applicable certification and disclosure
requirements, although the distributions will be subject to
federal income tax at the rates applicable to U.S. persons.
(Special certification requirements apply to a
Non-U.S. stockholder
that is a foreign partnership or a foreign trust, and such
entities are urged to consult their own tax advisers.)
96
In addition, with respect to certain distributions made to
Non-U.S. stockholders
in our taxable years beginning before January 1, 2010, no
withholding will be required and the distributions generally
will not be subject to federal income tax if (i) the
distributions are properly designated in a notice timely
delivered to our stockholders as interest-related
dividends or short-term capital gain
dividends, (ii) the distributions are derived from
sources specified in the Code for such dividends and
(iii) certain other requirements are satisfied. Currently,
we do not anticipate that any significant amount of our
distributions will be designated as eligible for this exemption
from withholding.
Actual or deemed distributions of our net capital gains to a
Non-U.S. stockholder,
and gains realized by a
Non-U.S. stockholder
upon the sale of our common stock, will not be subject to
federal withholding tax and generally will not be subject to
federal income tax unless the distributions or gains, as the
case may be, are effectively connected with a U.S. trade or
business of the
Non-U.S. stockholder
and, if an income tax treaty applies, are attributable to a
permanent establishment maintained by the
Non-U.S. stockholder
in the United States.
If we distribute our net capital gains in the form of deemed
rather than actual distributions, a
Non-U.S. stockholder
will be entitled to a federal income tax credit or tax refund
equal to the stockholders allocable share of the tax we
pay on the capital gains deemed to have been distributed. In
order to obtain the refund, the
Non-U.S. stockholder
must obtain a U.S. taxpayer identification number and file
a federal income tax return even if the
Non-U.S. stockholder
would not otherwise be required to obtain a U.S. taxpayer
identification number or file a federal income tax return. For a
corporate
Non-U.S. stockholder,
distributions (both actual and deemed), and gains realized upon
the sale of our common stock that are effectively connected to a
U.S. trade or business may, under certain circumstances, be
subject to an additional branch profits tax at a
30.0% rate (or at a lower rate if provided for by an applicable
treaty). Accordingly, investment in the shares may not be
appropriate for a
Non-U.S. stockholder.
A
Non-U.S. stockholder
who is a non-resident alien individual, and who is otherwise
subject to withholding of federal tax, may be subject to
information reporting and backup withholding of federal income
tax on dividends unless the
Non-U.S. stockholder
provides us or the dividend paying agent with an IRS
Form W-8BEN
(or an acceptable substitute form) or otherwise meets
documentary evidence requirements for establishing that it is a
Non-U.S. stockholder
or otherwise establishes an exemption from backup withholding.
Non-U.S. persons
should consult their own tax advisers with respect to the
U.S. federal income tax and withholding tax, and state,
local and foreign tax consequences of an investment in the
shares.
Failure
to Qualify as a RIC
If we were unable to qualify for treatment as a RIC in any year,
we would be subject to tax on all of our taxable income at
regular corporate rates, regardless of whether we make any
distributions to our stockholders. Distributions would not be
required, and any distributions would be taxable to our
stockholders as ordinary dividend income eligible for the 15.0%
maximum rate to the extent of our current and accumulated
earnings and profits. Subject to certain limitations under the
Code, corporate distributees would be eligible for the
dividends-received deduction. Distributions in excess of our
current and accumulated earnings and profits would be treated
first as a return of capital to the extent of the
stockholders tax basis, and any remaining distributions
would be treated as a capital gain.
97
REGULATION
Regulation
as a Business Development Company
We have elected to be regulated as a BDC under the 1940 Act. The
1940 Act contains prohibitions and restrictions relating to
transactions between BDCs and their affiliates, principal
underwriters and affiliates of those affiliates or underwriters.
The 1940 Act requires that a majority of the members of the
board of directors of a BDC be persons other than
interested persons, as that term is defined in the
1940 Act. In addition, the 1940 Act provides that we may not
change the nature of our business so as to cease to be, or to
withdraw our election as, a BDC unless approved by a majority of
our outstanding voting securities.
The 1940 Act defines a majority of the outstanding voting
securities as the lesser of (i) 67% or more of the
voting securities present at a meeting if the holders of more
than 50% of our outstanding voting securities are present or
represented by proxy or (ii) 50% of our voting securities.
Qualifying
Assets
Under the 1940 Act, a BDC may not acquire any asset other than
assets of the type listed in Section 55(a) of the 1940 Act,
which are referred to as qualifying assets, unless, at the time
the acquisition is made, qualifying assets represent at least
70% of the companys total assets. The principal categories
of qualifying assets relevant to our business are any of the
following:
(1) Securities purchased in transactions not involving any
public offering from the issuer of such securities, which issuer
(subject to certain limited exceptions) is an eligible portfolio
company (as defined below), or from any person who is, or has
been during the preceding 13 months, an affiliated person
of an eligible portfolio company, or from any other person,
subject to such rules as may be prescribed by the SEC.
(2) Securities of any eligible portfolio company that we
control.
(3) Securities purchased in a private transaction from a
U.S. issuer that is not an investment company or from an
affiliated person of the issuer, or in transactions incident
thereto, if the issuer is in bankruptcy and subject to
reorganization or if the issuer, immediately prior to the
purchase of its securities was unable to meet its obligations as
they came due without material assistance other than
conventional lending or financing arrangements.
(4) Securities of an eligible portfolio company purchased
from any person in a private transaction if there is no ready
market for such securities and we already own 60% of the
outstanding equity of the eligible portfolio company.
(5) Securities received in exchange for or distributed on
or with respect to securities described in (1) through
(4) above, or pursuant to the exercise of warrants or
rights relating to such securities.
(6) Cash, cash equivalents, U.S. government securities
or high-quality debt securities maturing in one year or less
from the time of investment.
In addition, a BDC must have been organized and have its
principal place of business in the United States and must be
operated for the purpose of making investments in the types of
securities described in (1), (2) or (3) above.
An eligible portfolio company is defined in the 1940 Act as any
issuer which:
(a) is organized under the laws of, and has its principal
place of business in, the United States;
(b) is not an investment company (other than a small
business investment company wholly owned by the BDC) or a
company that would be an investment company but for certain
exclusions under the 1940 Act; and
98
(c) satisfies any of the following:
(i) does not have any class of securities that is traded on
a national securities exchange or has a class of securities
listed on a national securities exchange but has an aggregate
market value of outstanding voting and non-voting common equity
of less than $250 million;
(ii) is controlled by a BDC or a group of companies
including a BDC and the BDC has an affiliated person who is a
director of the eligible portfolio company; or
(iii) is a small and solvent company having total assets of
not more than $4 million and capital and surplus of not
less than $2 million.
Managerial
Assistance to Portfolio Companies
In order to count portfolio securities as qualifying assets for
the purpose of the 70% test, we must either control the issuer
of the securities or must offer to make available to the issuer
of the securities (other than small and solvent companies
described above) significant managerial assistance; except that,
where we purchase such securities in conjunction with one or
more other persons acting together, one of the other persons in
the group may make available such managerial assistance. Making
available managerial assistance means, among other things, any
arrangement whereby the BDC, through its directors, officers or
employees, offers to provide, and, if accepted, does so provide,
significant guidance and counsel concerning the management,
operations or business objectives and policies of a portfolio
company.
Idle
Funds Investments
Pending investment in other types of qualifying
assets, as described above, our investments may consist of
U.S. government securities, investments in high-quality
debt investments and diversified bond funds, which we refer to,
collectively, as idle funds investments, so that 70% of our
assets are qualifying assets.
Senior
Securities
We are permitted, under specified conditions, to issue multiple
classes of debt and one class of stock senior to our common
stock if our asset coverage, as defined in the 1940 Act, is at
least equal to 200% of all debt
and/or
senior stock immediately after each such issuance. In addition,
while any senior securities remain outstanding (other than
senior securities representing indebtedness issued in
consideration of a privately arranged loan which is not intended
to be publicly distributed), we must make provisions to prohibit
any distribution to our stockholders or the repurchase of such
securities or shares unless we meet the applicable asset
coverage ratios at the time of the distribution or repurchase.
We may also borrow amounts up to 5% of the value of our total
assets for temporary or emergency purposes without regard to
asset coverage. For a discussion of the risks associated with
leverage, see Risk Factors Risks Relating to
Our Business and Structure, including, without limitation,
Because we borrow money, the potential for
gain or loss on amounts invested in us is magnified and may
increase the risk of investing in us.
In January 2008, we received an exemptive order from the SEC to
exclude debt securities issued by the Fund from the asset
coverage requirements of the 1940 Act as applicable to Main
Street. The exemptive order provides for the exclusion of all
debt securities issued by the Fund, including the
$55 million of currently outstanding debt related to its
participation in the SBIC program. This exemptive order provides
us with expanded capacity and flexibility in obtaining future
sources of capital for our investment and operational objectives.
Common
Stock
We are not generally able to issue and sell our common stock at
a price below net asset value per share. We may, however, sell
our common stock, warrants, options or rights to acquire our
common stock, at a price below the current net asset value of
the common stock if our Board of Directors determines that such
sale is in our best interests and that of our stockholders, and
our stockholders approve such sale. In any such case, the price
at which our securities are to be issued and sold may not be
less than a price which, in the
99
determination of our board of directors, closely approximates
the market value of such securities (less any distributing
commission or discount). On June 17, 2008, our stockholders
approved proposals that (1) authorize us to sell shares of
our common stock below the then current net asset value per
share of our common stock in one or more offerings for a period
of one year ending on the earlier of June 16, 2009 or the
date of our 2009 annual meeting of stockholders and
(2) authorize us to issue securities to subscribe to,
convert to, or purchase shares of our common stock in one or
more offerings. We may also make rights offerings to our
stockholders at prices per share less than the net asset value
per share, subject to applicable requirements of the 1940 Act.
See Risk Factors Risks Relating to Our
Business and Structure Stockholders may incur
dilution if we sell shares of our common stock in one or more
offerings at prices below the then current net asset value per
share of our common stock or issue securities to subscribe to,
convert to or purchase shares of our common stock.
Code
of Ethics
We have adopted a code of ethics pursuant to
Rule 17j-1
under the 1940 Act that establishes procedures for personal
investments and restricts certain personal securities
transactions. Personnel subject to the code may invest in
securities for their personal investment accounts, including
securities that may be purchased or held by us, so long as such
investments are made in accordance with the codes
requirements.
Proxy
Voting Policies and Procedures
We vote proxies relating to our portfolio securities in a manner
in which we believe is consistent with the best interest of our
stockholders. We review on a
case-by-case
basis each proposal submitted to a stockholder vote to determine
its impact on the portfolio securities held by us. Although we
generally vote against proposals that we expect would have a
negative impact on our portfolio securities, we may vote for
such a proposal if there exists compelling long-term reasons to
do so.
Our proxy voting decisions are made by the deal team which is
responsible for monitoring each of our investments. To ensure
that our vote is not the product of a conflict of interest, we
require that: (i) anyone involved in the decision-making
process to disclose to our chief compliance officer any
potential conflict of which he or she is aware and any contact
that he or she has had with any interested party regarding a
proxy vote and (ii) employees involved in the decision
making process or vote administration are prohibited from
revealing how we intend to vote on a proposal in order to reduce
any attempted influence from interested parties.
Stockholders may obtain information, without charge, regarding
how we voted proxies with respect to our portfolio securities by
making a written request for proxy voting information to: Chief
Compliance Officer, 1300 Post Oak Boulevard, Suite 800,
Houston, Texas 77056.
Other
1940 Act Regulations
We may also be prohibited under the 1940 Act from knowingly
participating in certain transactions with our affiliates
without the prior approval of our Board of Directors who are not
interested persons and, in some cases, prior approval by the
SEC. In June 2008, we received an exemptive order from the SEC
to permit co-investments in portfolio companies among Main
Street and certain of its affiliates, including MSC II, subject
to certain conditions of the order.
We are required to provide and maintain a bond issued by a
reputable fidelity insurance company to protect us against
larceny and embezzlement. Furthermore, as a BDC, we are
prohibited from protecting any director or officer against any
liability to us or our stockholders arising from willful
misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of such persons
office.
We are required to adopt and implement written policies and
procedures reasonably designed to prevent violation of the
federal securities laws, review these policies and procedures
annually for their adequacy and the effectiveness of their
implementation, and to designate a chief compliance officer to
be responsible for administering the policies and procedures.
100
We may be periodically examined by the SEC for compliance with
the 1940 Act.
Small
Business Investment Company Regulations
The Fund is licensed by the SBA to operate as a SBIC under
Section 301(c) of the Small Business Investment Act of
1958. As a part of the Formation Transactions, the Fund became a
wholly-owned subsidiary of MSCC, and continues to hold its SBIC
license. The Fund initially obtained its SBIC license on
September 30, 2002.
SBICs are designed to stimulate the flow of private equity
capital to eligible small businesses. Under SBIC regulations,
SBICs may make loans to eligible small businesses, invest in the
equity securities of such businesses and provide them with
consulting and advisory services. The Fund has typically
invested in secured debt, acquired warrants
and/or made
equity investments in qualifying small businesses.
Under present SBIC regulations, eligible small businesses
generally include businesses that (together with their
affiliates) have a tangible net worth not exceeding
$18 million and have average annual net income after
federal income taxes not exceeding $6 million (average net
income to be computed without benefit of any carryover loss) for
the two most recent fiscal years. In addition, an SBIC must
devote 20% of its investment activity to smaller
concerns as defined by the SBA. A smaller concern generally
includes businesses that have a tangible net worth not exceeding
$6 million and have average annual net income after federal
income taxes not exceeding $2 million (average net income
to be computed without benefit of any net carryover loss) for
the two most recent fiscal years. SBIC regulations also provide
alternative size standard criteria to determine eligibility for
designation as an eligible small business or smaller concern,
which criteria depend on the primary industry in which the
business is engaged and are based on such factors as the number
of employees and gross revenue. However, once an SBIC has
invested in a company, it may continue to make follow on
investments in the company, regardless of the size of the
portfolio company at the time of the follow on investment, up to
the time of the portfolio companys initial public offering.
The SBA prohibits an SBIC from providing funds to small
businesses for certain purposes, such as relending and
investment outside the United States, to businesses engaged in a
few prohibited industries, and to certain passive
(non-operating) companies. In addition, without prior SBA
approval, an SBIC may not invest an amount equal to more than
approximately 30% of the SBICs regulatory capital in any
one portfolio company and its affiliates.
The SBA places certain limitations on the financing terms of
investments by SBICs in portfolio companies (such as limiting
the permissible interest rate on debt securities held by an SBIC
in a portfolio company). Although prior regulations prohibited
an SBIC from controlling a small business concern except in
limited circumstances, regulations adopted by the SBA in 2002
now allow an SBIC to exercise control over a small business for
a period of seven years from the date on which the SBIC
initially acquires its control position. This control period may
be extended for an additional period of time with the SBAs
prior written approval.
The SBA restricts the ability of an SBIC to lend money to any of
its officers, directors and employees or to invest in affiliates
thereof. The SBA also prohibits, without prior SBA approval, a
change of control of an SBIC or transfers that would
result in any person (or a group of persons acting in concert)
owning 10% or more of a class of capital stock of a licensed
SBIC. A change of control is any event which would
result in the transfer of the power, direct or indirect, to
direct the management and policies of an SBIC, whether through
ownership, contractual arrangements or otherwise.
An SBIC (or group of SBICs under common control) may generally
have outstanding debentures guaranteed by the SBA in amounts up
to twice the amount of the privately-raised funds of the
SBIC(s). Debentures guaranteed by the SBA have a maturity of ten
years, require semi-annual payments of interest, do not require
any principal payments prior to maturity, and, historically,
were subject to certain prepayment penalties. Those prepayment
penalties no longer apply as of September 2006. As of
December 31, 2008, we, through the Fund, had issued
$55 million of SBA-guaranteed debentures, which had an
annual weight-averaged interest rate of approximately 5.8%.
101
The recently enacted American Recovery and Reinvestment Act of
2009 (the 2009 Stimulus Bill) contains several
provisions applicable to SBIC funds, including the Fund, Main
Streets wholly owned subsidiary. One of the key
SBIC-related provisions included in the 2009 Stimulus Bill
increases the maximum amount of combined SBIC leverage (or SBIC
leverage cap) to $225 million for affiliated SBIC funds.
The prior maximum amount of SBIC leverage available to
affiliated SBIC funds was approximately $137 million, as
adjusted annually based upon changes in the Consumer Price
Index. Due to the increase in the maximum amount of SBIC
leverage available to affiliated SBIC funds, Main Street,
through the Fund, will now have access to incremental SBIC
leverage to support its future investment activities. Since the
increase in the SBIC leverage cap applies to affiliated SBIC
funds, Main Street will allocate such increased borrowing
capacity between the Fund and MSC II, an independently owned
SBIC that is managed by Main Street and therefore deemed to be
affiliated with the Fund for SBIC regulatory purposes. It is
currently estimated that at least $55 million to
$60 million of additional SBIC leverage is now accessible
by Main Street, through the Fund, for future investment
activities, subject to the required capitalization of the Fund.
SBICs must invest idle funds that are not being used to make
loans in investments permitted under SBIC regulations in the
following limited types of securities: (i) direct
obligations of, or obligations guaranteed as to principal and
interest by, the United States government, which mature within
15 months from the date of the investment;
(ii) repurchase agreements with federally insured
institutions with a maturity of seven days or less (and the
securities underlying the repurchase obligations must be direct
obligations of or guaranteed by the federal government);
(iii) certificates of deposit with a maturity of one year
or less, issued by a federally insured institution; (iv) a
deposit account in a federally insured institution that is
subject to a withdrawal restriction of one year or less;
(v) a checking account in a federally insured institution;
or (vi) a reasonable petty cash fund.
SBICs are periodically examined and audited by the SBAs
staff to determine their compliance with SBIC regulations and
are periodically required to file certain forms with the SBA.
We requested that the SEC allow us to exclude any indebtedness
guaranteed by the SBA and issued by the Fund from the 200% asset
coverage requirements applicable to us as a BDC. In January
2008, we received an exemptive order from the SEC to exclude
such debt securities issued by the Fund, including the
$55 million of currently outstanding debt related to the
Funds participation in the SBIC program.
Neither the SBA nor the U.S. government or any of its
agencies or officers has approved any ownership interest to be
issued by us or any obligation that we or any of our
subsidiaries may incur.
Securities
Exchange Act of 1934 and Sarbanes-Oxley Act Compliance
We are subject to the reporting and disclosure requirements of
the Securities Exchange Act of 1934 (the Exchange
Act), including the filing of quarterly, annual and
current reports, proxy statements and other required items. In
addition, we are subject to the Sarbanes-Oxley Act of 2002,
which imposes a wide variety of regulatory requirements on
publicly-held companies and their insiders. For example:
|
|
|
|
|
pursuant to
Rule 13a-14
of the Exchange Act, our Chief Executive Officer and Chief
Financial Officer are required to certify the accuracy of the
financial statements contained in our periodic reports;
|
|
|
|
pursuant to Item 307 of
Regulation S-K,
our periodic reports are required to disclose our conclusions
about the effectiveness of our disclosure controls and
procedures;
|
|
|
|
pursuant to
Rule 13a-15
of the Exchange Act, our management is required to prepare a
report regarding its assessment of our internal control over
financial reporting, and separately, our independent registered
public accounting firm audits our internal controls over
financial reporting; and
|
|
|
|
pursuant to Item 308 of
Regulation S-K
and
Rule 13a-15
of the Exchange Act, our periodic reports must disclose whether
there were significant changes in our internal control over
financial reporting or in other factors that could significantly
affect these controls subsequent to the date of their
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
|
102
The
Nasdaq Global Select Market Corporate Governance
Regulations
The Nasdaq Global Select Market has adopted corporate governance
regulations that listed companies must comply with. We believe
we are in compliance with such corporate governance listing
standards. We intend to monitor our compliance with all future
listing standards and to take all necessary actions to ensure
that we stay in compliance.
PLAN OF
DISTRIBUTION
We may sell our common stock through underwriters or dealers,
at the market to or through a market maker or into
an existing trading market or otherwise, directly to one or more
purchasers or through agents or through a combination of any
such methods of sale. Any underwriter or agent involved in the
offer and sale of our common stock will also be named in the
applicable prospectus supplement.
The distribution of our common stock may be effected from time
to time in one or more transactions at a fixed price or prices,
which may be changed, at prevailing market prices at the time of
sale, at prices related to such prevailing market prices, or at
negotiated prices, provided, however, that the offering price
per share of our common stock less any underwriting commissions
or discounts must equal or exceed the net asset value per share
of our common stock except (i) with the consent of the
majority of our common stockholders or (ii) under such
other circumstances as the SEC may permit. See Risk
Factors Risks Relating to Our Business and
Structure Stockholders may incur dilution if we sell
shares of our common stock in one or more offerings at prices
below the then current net asset value per share of our common
stock or issue securities to subscribe to, convert to or
purchase shares of our common stock for a discussion of
proposals approved by our stockholders that permit us to issue
shares of our common stock below net asset value.
In connection with the sale of our common stock, underwriters or
agents may receive compensation from us or from purchasers of
our common stock, for whom they may act as agents, in the form
of discounts, concessions or commissions. Underwriters may sell
our common stock to or through dealers and such dealers may
receive compensation in the form of discounts, concessions or
commissions from the underwriters
and/or
commissions from the purchasers for whom they may act as agents.
Underwriters, dealers and agents that participate in the
distribution of our common stock may be deemed to be
underwriters under the Securities Act, and any discounts and
commissions they receive from us and any profit realized by them
on the resale of our common stock may be deemed to be
underwriting discounts and commissions under the Securities Act.
Any such underwriter or agent will be identified and any such
compensation received from us will be described in the
applicable prospectus supplement.
We may enter into derivative transactions with third parties, or
sell securities not covered by this prospectus to third parties
in privately negotiated transactions. If the applicable
prospectus supplement indicates, in connection with those
derivatives, the third parties may sell common stock covered by
this prospectus and the applicable prospectus supplement,
including in short sale transactions. If so, the third party may
use securities pledged by us or borrowed from us or others to
settle those sales or to close out any related open borrowings
of stock, and may use securities received from us in settlement
of those derivatives to close out any related open borrowings of
stock. The third parties in such sale transactions will be
underwriters and, if not identified in this prospectus, will be
identified in the applicable prospectus supplement (or a
post-effective amendment).
Any of our common stock sold pursuant to a prospectus supplement
will be listed on the Nasdaq Global Select Market, or another
exchange on which our common stock is traded.
Under agreements into which we may enter, underwriters, dealers
and agents who participate in the distribution of our common
stock may be entitled to indemnification by us against certain
liabilities, including liabilities under the Securities Act.
Underwriters, dealers and agents may engage in transactions
with, or perform services for, us in the ordinary course of
business.
If so indicated in the applicable prospectus supplement, we will
authorize underwriters or other persons acting as our agents to
solicit offers by certain institutions to purchase our common
stock from us pursuant to
103
contracts providing for payment and delivery on a future date.
Institutions with which such contracts may be made include
commercial and savings banks, insurance companies, pension
funds, investment companies, educational and charitable
institutions and others, but in all cases such institutions must
be approved by us. The obligations of any purchaser under any
such contract will be subject to the condition that the purchase
of our common stock shall not at the time of delivery be
prohibited under the laws of the jurisdiction to which such
purchaser is subject. The underwriters and such other agents
will not have any responsibility in respect of the validity or
performance of such contracts. Such contracts will be subject
only to those conditions set forth in the prospectus supplement,
and the prospectus supplement will set forth the commission
payable for solicitation of such contracts.
In order to comply with the securities laws of certain states,
if applicable, our common stock offered hereby will be sold in
such jurisdictions only through registered or licensed brokers
or dealers. In addition, in certain states, our common stock may
not be sold unless it has been registered or qualified for sale
in the applicable state or an exemption from the registration or
qualification requirement is available and is complied with.
The maximum commission or discount to be received by any member
of the Financial Industry Regulatory Authority, Inc. will not be
greater than 10% for the sale of any securities being registered.
CUSTODIAN,
TRANSFER AND DISTRIBUTION PAYING AGENT AND REGISTRAR
Our securities are held under custody agreements by Amegy Bank
National Association, whose address is 1221 McKinney Street
Level P-1
Houston, Texas 77010, and Branch Banking and Trust Company,
whose address is 5130 Parkway Plaza Boulevard, Charlotte, North
Carolina 28217. American Stock Transfer &
Trust Company acts as our transfer agent, distribution
paying agent and registrar. The principal business address of
our transfer agent is 59 Maiden Lane New York, New York 10038,
telephone number:
(212) 936-5100.
BROKERAGE
ALLOCATION AND OTHER PRACTICES
Since we generally acquire and dispose of our investments in
privately negotiated transactions, we infrequently use brokers
in the normal course of our business. Our investment team is
primarily responsible for the execution of the publicly traded
securities portion of our portfolio transactions and the
allocation of brokerage commissions. We do not expect to execute
transactions through any particular broker or dealer, but will
seek to obtain the best net results for us, taking into account
such factors as price (including the applicable brokerage
commission or dealer spread), size of order, difficulty of
execution, and operational facilities of the firm and the
firms risk and skill in positioning blocks of securities.
While we will generally seek reasonably competitive trade
execution costs, we will not necessarily pay the lowest spread
or commission available. Subject to applicable legal
requirements, we may select a broker based partly upon brokerage
or research services provided to us. In return for such
services, we may pay a higher commission than other brokers
would charge if we determine in good faith that such commission
is reasonable in relation to the services provided. We did not
pay any brokerage commissions during the year ended
December 31, 2008.
LEGAL
MATTERS
Certain legal matters regarding the shares of common stock
offered hereby will be passed upon for us by Sutherland
Asbill & Brennan LLP, Washington D.C. Certain legal
matters will be passed upon for underwriters, if any, by the
counsel named in the prospectus supplement, if any.
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
The consolidated financial statements and
Schedule 12-14
of Main Street Capital Corporation as of December 31, 2008
and December 31, 2007 and for the two years then ended, the
combined financial
104
statements of Main Street Mezzanine Fund, LP and Main Street
Mezzanine Management, LLC as of December 31, 2006 and for
the year then ended, and the Senior Securities
table, included in this prospectus and elsewhere in the
registration statement have been so included in reliance upon
the reports of Grant Thornton LLP, independent registered public
accountants, upon the authority of said firm as experts in
giving said reports.
AVAILABLE
INFORMATION
We have filed with the SEC a registration statement on
Form N-2,
together with all amendments and related exhibits, under the
Securities Act, with respect to our shares of common stock
offered by this prospectus or any prospectus supplement. The
registration statement contains additional information about us
and our shares of common stock being offered by this prospectus
or any prospectus supplement.
We file with or submit to the SEC annual, quarterly and current
reports, proxy statements and other information meeting the
informational requirements of the Exchange Act. You may inspect
and copy these reports, proxy statements and other information,
as well as the registration statement and related exhibits and
schedules, at the Public Reference Room of the SEC at
100 F Street, N.E., Washington, D.C. 20549. You
may obtain information on the operation of the Public Reference
Room by calling the SEC at
1-800-SEC-0330.
The SEC maintains an Internet site that contains reports, proxy
and information statements and other information filed
electronically by us with the SEC, which are available on the
SECs website at www.sec.gov. Copies of these
reports, proxy and information statements and other information
may be obtained, after paying a duplicating fee, by electronic
request at the following
e-mail
address: publicinfo@sec.gov, or by writing the SECs
Public Reference Section, 100 F Street, N.E.,
Washington, D.C. 20549.
PRIVACY
NOTICE
We are committed to protecting your privacy. This privacy notice
explains the privacy policies of Main Street and its affiliated
companies. This notice supersedes any other privacy notice you
may have received from Main Street.
We will safeguard, according to strict standards of security and
confidentiality, all information we receive about you. The only
information we collect from you is your name, address, and
number of shares you hold. This information is used only so that
we can send you annual reports and other information about us,
and send you proxy statements or other information required by
law.
We do not share this information with any non-affiliated third
party except as described below.
|
|
|
|
|
The People and Companies that Make Up Main
Street. It is our policy that only our authorized
employees who need to know your personal information will have
access to it. Our personnel who violate our privacy policy are
subject to disciplinary action.
|
|
|
|
Service Providers. We may disclose your
personal information to companies that provide services on our
behalf, such as record keeping, processing your trades, and
mailing you information. These companies are required to protect
your information and use it solely for the purpose for which
they received it.
|
|
|
|
Courts and Government Officials. If required
by law, we may disclose your personal information in accordance
with a court order or at the request of government regulators.
Only that information required by law, subpoena, or court order
will be disclosed.
|
105
Report of
Independent Registered Public Accounting Firm
Board of Directors and Stockholders of
Main Street Capital Corporation
We have audited the accompanying consolidated balance sheet of
Main Street Capital Corporation (a Maryland corporation), and
its consolidated subsidiaries, Main Street Mezzanine Management,
LLC, Main Street Equity Interests, Inc. and Main Street
Mezzanine Fund, LP, including the consolidated schedule of
investments, as of December 31, 2008 and 2007 and the
related consolidated statements of operations, changes in net
assets and cash flows and the consolidated financial highlights
(see Note H) for the two years then ended. We have
also audited the combined statements of operations, changes in
net assets, and cash flows and the combined financial highlights
of Main Street Mezzanine Fund, LP and Main Street Mezzanine
Management, LLC for the year ended December 31, 2006. These
financial statements and financial highlights are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit also includes examining,
on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements and
financial highlights referred to above present fairly, in all
material respects, the consolidated financial position of Main
Street Capital Corporation and subsidiaries as of
December 31, 2008 and 2007 and the consolidated results of
their operations, changes in net assets, cash flows and
financial highlights for the two years then ended and the
combined results of operations, changes in net assets, cash
flows and financial highlights of Main Street Mezzanine Fund, LP
and Main Street Mezzanine Management, LLC for the year ended
December 31, 2006, in conformity with accounting principles
generally accepted in the United States of America.
As discussed in Note B to the consolidated financial
statements, the Company changed its method of accounting for the
fair value of its portfolio investments in 2008 due to the
adoption of Statement of Financial Accounting Standards
No. 157, Fair Value Measurements.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), Main
Street Capital Corporations internal control over
financial reporting as of December 31, 2008, based on
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report
dated March 11, 2009, expressed an unqualified opinion on
the effectiveness of the Companys internal control over
financial reporting.
Houston, Texas
March 12, 2009
F-2
Report of
Independent Registered Public Accounting Firm
Board of Directors and Stockholders of
Main Street Capital Corporation
We have audited Main Street Capital Corporation and
subsidiaries (the Company) internal control over financial
reporting as of December 31, 2008, based on criteria
established in Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Main Street
Capital Corporations management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying
Managements Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the
Companys internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our
opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Main Street Capital Corporation maintained, in
all material respects, effective internal control over financial
reporting as of December 31, 2008, based on criteria
established in Internal Control Integrated
Framework issued by COSO.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheet of Main Street Capital Corporation
and subsidiaries as of December 31, 2008 and 2007,
including the consolidated schedule of investments as of
December 31, 2008 and 2007, and the related consolidated
statements of operations, changes in net assets and cash flows,
and the financial highlights (see Note H), for the two
years then ended and the combined results of operations, changes
in net assets, cash flows and financial highlights of Main
Street Mezzanine Fund, LP and Main Street Mezzanine Management,
LLC for the year ended December 31, 2006, and our report
dated March 11, 2009, expressed an unqualified opinion on
those consolidated and combined financial statements.
Houston, Texas
March 12, 2009
F-3
MAIN
STREET CAPITAL CORPORATION
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
ASSETS
|
Investments at fair value:
|
|
|
|
|
|
|
|
|
Control investments (cost: $60,767,805 and $43,053,372 as of
December 31, 2008 and 2007, respectively)
|
|
$
|
65,542,608
|
|
|
$
|
48,108,197
|
|
Affiliate investments (cost: $37,946,800 and $33,037,053 as of
December 31, 2008 and 2007, respectively)
|
|
|
39,412,695
|
|
|
|
36,176,216
|
|
Non-Control/Non-Affiliate investments (cost: $6,245,405 and
$3,381,001 as of December 31, 2008 and 2007, respectively)
|
|
|
5,375,886
|
|
|
|
3,741,001
|
|
Investment in affiliated Investment Manager (cost: $18,000,000
as of December 31, 2008 and 2007)
|
|
|
16,675,626
|
|
|
|
17,625,000
|
|
|
|
|
|
|
|
|
|
|
Total investments (cost: $122,960,010 and $97,471,426 as of
December 31, 2008 and 2007, respectively)
|
|
|
127,006,815
|
|
|
|
105,650,414
|
|
Idle funds investments (cost: $4,218,704 and $24,063,261 as of
December 31, 2008 and 2007, respectively)
|
|
|
4,389,795
|
|
|
|
24,063,261
|
|
Cash and cash equivalents
|
|
|
35,374,826
|
|
|
|
41,889,324
|
|
Deferred tax asset
|
|
|
1,121,681
|
|
|
|
|
|
Other assets
|
|
|
1,100,922
|
|
|
|
1,574,888
|
|
Deferred financing costs (net of accumulated amortization of
$956,037 and $529,952 as of December 31, 2008 and 2007,
respectively)
|
|
|
1,635,238
|
|
|
|
1,670,135
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
170,629,277
|
|
|
$
|
174,848,022
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
SBIC debentures
|
|
$
|
55,000,000
|
|
|
$
|
55,000,000
|
|
Deferred tax liability
|
|
|
|
|
|
|
3,025,672
|
|
Interest payable
|
|
|
1,108,193
|
|
|
|
1,062,672
|
|
Accounts payable and other liabilities
|
|
|
2,165,028
|
|
|
|
610,470
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
58,273,221
|
|
|
|
59,698,814
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
NET ASSETS
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value per share
(150,000,000 shares authorized; 9,241,183 and 8,959,718
issued and 9,206,483 and 8,959,718 outstanding as of
December 31, 2008 and 2007, respectively)
|
|
|
92,412
|
|
|
|
89,597
|
|
Additional paid-in capital
|
|
|
104,798,399
|
|
|
|
104,076,033
|
|
Undistributed net realized income
|
|
|
3,658,495
|
|
|
|
6,067,131
|
|
Net unrealized appreciation from investments, net of income taxes
|
|
|
4,137,756
|
|
|
|
4,916,447
|
|
Treasury stock, at cost (34,700 and 0 shares as of
December 31, 2008 and 2007, respectively)
|
|
|
(331,006
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net assets
|
|
|
112,356,056
|
|
|
|
115,149,208
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and net assets
|
|
$
|
170,629,277
|
|
|
$
|
174,848,022
|
|
|
|
|
|
|
|
|
|
|
NET ASSET VALUE PER SHARE
|
|
$
|
12.20
|
|
|
$
|
12.85
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements
F-4
MAIN
STREET CAPITAL CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Consolidated)
|
|
|
(Consolidated)
|
|
|
(Combined)
|
|
|
INVESTMENT INCOME:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest, fee and dividend income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Control investments
|
|
$
|
9,826,369
|
|
|
$
|
5,201,382
|
|
|
$
|
4,295,354
|
|
Affiliate investments
|
|
|
4,842,442
|
|
|
|
5,390,655
|
|
|
|
3,573,570
|
|
Non-Control/Non-Affiliate investments
|
|
|
1,298,386
|
|
|
|
720,076
|
|
|
|
1,144,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest, fee and dividend income
|
|
|
15,967,197
|
|
|
|
11,312,113
|
|
|
|
9,013,137
|
|
Interest from idle funds and other
|
|
|
1,328,229
|
|
|
|
1,162,865
|
|
|
|
748,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment income
|
|
|
17,295,426
|
|
|
|
12,474,978
|
|
|
|
9,761,807
|
|
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
(3,777,919
|
)
|
|
|
(3,245,839
|
)
|
|
|
(2,717,236
|
)
|
General and administrative
|
|
|
(1,684,084
|
)
|
|
|
(512,253
|
)
|
|
|
(197,979
|
)
|
Expenses reimbursed to Investment Manager
|
|
|
(1,006,835
|
)
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
(511,452
|
)
|
|
|
|
|
|
|
|
|
Management fees to affiliate
|
|
|
|
|
|
|
(1,499,937
|
)
|
|
|
(1,942,032
|
)
|
Professional costs related to initial public offering
|
|
|
|
|
|
|
(695,250
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
(6,980,290
|
)
|
|
|
(5,953,279
|
)
|
|
|
(4,857,247
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INVESTMENT INCOME
|
|
|
10,315,136
|
|
|
|
6,521,699
|
|
|
|
4,904,560
|
|
NET REALIZED GAIN (LOSS) FROM INVESTMENTS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Control investments
|
|
|
188,214
|
|
|
|
1,802,713
|
|
|
|
(805,469
|
)
|
Affiliate investments
|
|
|
1,209,280
|
|
|
|
3,160,034
|
|
|
|
1,940,794
|
|
Non-Control/Non-Affiliate investments
|
|
|
|
|
|
|
(270,538
|
)
|
|
|
1,294,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net realized gain (loss) from investments
|
|
|
1,397,494
|
|
|
|
4,692,209
|
|
|
|
2,429,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET REALIZED INCOME
|
|
|
11,712,630
|
|
|
|
11,213,908
|
|
|
|
7,334,483
|
|
NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) FROM
INVESTMENTS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Control investments
|
|
|
(217,717
|
)
|
|
|
(3,075,392
|
)
|
|
|
6,631,698
|
|
Affiliate investments
|
|
|
(1,735,573
|
)
|
|
|
(2,340,933
|
)
|
|
|
2,831,649
|
|
Non-Control/Non-Affiliate investments
|
|
|
(1,058,428
|
)
|
|
|
384,832
|
|
|
|
(974,833
|
)
|
Investment in affiliated Investment Manager
|
|
|
(949,374
|
)
|
|
|
(375,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net change in unrealized appreciation (depreciation) from
investments
|
|
|
(3,961,092
|
)
|
|
|
(5,406,493
|
)
|
|
|
8,488,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit (provision)
|
|
|
3,182,401
|
|
|
|
(3,262,539
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
|
|
$
|
10,933,939
|
|
|
$
|
2,544,876
|
|
|
$
|
15,822,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INVESTMENT INCOME PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC AND DILUTED
|
|
$
|
1.15
|
|
|
$
|
0.76
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET REALIZED INCOME PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC AND DILUTED
|
|
$
|
1.31
|
|
|
$
|
1.31
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DIVIDENDS/DISTRIBUTIONS PAID PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC AND DILUTED
|
|
$
|
1.43
|
|
|
$
|
1.10
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS PER
SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC AND DILUTED
|
|
$
|
1.22
|
|
|
$
|
0.30
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE SHARES OUTSTANDING
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
|
|
|
8,967,383
|
|
|
|
8,587,701
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED
|
|
|
8,971,064
|
|
|
|
8,587,701
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements
F-5
MAIN
STREET CAPITAL CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Appreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
Members
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
from
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
Limited
|
|
|
Common Stock
|
|
|
Additional
|
|
|
Undistributed
|
|
|
Investments,
|
|
|
Treasry Stock
|
|
|
Total
|
|
|
|
(General
|
|
|
Partners
|
|
|
Number
|
|
|
Par
|
|
|
Paid-In
|
|
|
Net Realized
|
|
|
Net of Income
|
|
|
Number
|
|
|
|
|
|
Net
|
|
|
|
Partner)
|
|
|
Capital
|
|
|
of Shares
|
|
|
Value
|
|
|
Capital
|
|
|
Income
|
|
|
Taxes
|
|
|
of Shares
|
|
|
Value
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2005
|
|
$
|
179,942
|
|
|
$
|
25,415,978
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,575,857
|
|
|
$
|
5,096,965
|
|
|
|
|
|
|
$
|
|
|
|
$
|
33,268,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital contributions
|
|
|
1,828
|
|
|
|
353,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
355,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to partners
|
|
|
|
|
|
|
(530,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,644,297
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,174,297
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase resulting from operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,334,483
|
|
|
|
8,488,514
|
|
|
|
|
|
|
|
|
|
|
|
15,822,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2006
|
|
|
181,770
|
|
|
|
25,239,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,266,043
|
|
|
|
13,585,479
|
|
|
|
|
|
|
|
|
|
|
|
43,272,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital contributions
|
|
|
|
|
|
|
300,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to partners
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,500,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,500,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Formation Transactions
|
|
|
(181,770
|
)
|
|
|
(25,539,320
|
)
|
|
|
4,525,726
|
|
|
|
45,257
|
|
|
|
43,675,833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial Capitalization
|
|
|
|
|
|
|
|
|
|
|
1,000
|
|
|
|
10
|
|
|
|
990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Public offering of common stock
|
|
|
|
|
|
|
|
|
|
|
4,300,000
|
|
|
|
43,000
|
|
|
|
60,139,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,182,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs related to offering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,642,573
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,642,573
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid to stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,912,820
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,912,820
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend reinvestment
|
|
|
|
|
|
|
|
|
|
|
132,992
|
|
|
|
1,330
|
|
|
|
1,901,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,903,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase resulting from operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,213,908
|
|
|
|
(8,669,032
|
)
|
|
|
|
|
|
|
|
|
|
|
2,544,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
8,959,718
|
|
|
|
89,597
|
|
|
|
104,076,033
|
|
|
|
6,067,131
|
|
|
|
4,916,447
|
|
|
|
|
|
|
|
|
|
|
|
115,149,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of restricted stock
|
|
|
|
|
|
|
|
|
|
|
265,645
|
|
|
|
2,657
|
|
|
|
(2,657
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock dividend reinvestment plan
|
|
|
|
|
|
|
|
|
|
|
15,820
|
|
|
|
158
|
|
|
|
213,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
213,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34,700
|
)
|
|
|
(331,006
|
)
|
|
|
(331,006
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
511,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
511,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared to stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,121,266
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,121,266
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase resulting from operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,712,630
|
|
|
|
(778,691
|
)
|
|
|
|
|
|
|
|
|
|
|
10,933,939
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2008
|
|
$
|
|
|
|
$
|
|
|
|
|
9,241,183
|
|
|
$
|
92,412
|
|
|
$
|
104,798,399
|
|
|
$
|
3,658,495
|
|
|
$
|
4,137,756
|
|
|
|
(34,700
|
)
|
|
$
|
(331,006
|
)
|
|
$
|
112,356,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements
F-6
MAIN
STREET CAPITAL CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Consolidated)
|
|
|
(Consolidated)
|
|
|
(Combined)
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting from operations:
|
|
$
|
10,933,939
|
|
|
$
|
2,544,876
|
|
|
$
|
15,822,997
|
|
Adjustments to reconcile net increase in net assets resulting
from operations to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of unearned income
|
|
|
(1,062,452
|
)
|
|
|
(998,069
|
)
|
|
|
(1,380,351
|
)
|
Net
payment-in-kind
interest accrual
|
|
|
(216,505
|
)
|
|
|
(260,806
|
)
|
|
|
(216,805
|
)
|
Share-based compensation
|
|
|
511,452
|
|
|
|
|
|
|
|
|
|
Amortization of deferred financing costs
|
|
|
426,084
|
|
|
|
186,106
|
|
|
|
157,850
|
|
Net change in unrealized (appreciation) depreciation from
investments
|
|
|
3,961,092
|
|
|
|
5,406,493
|
|
|
|
(8,488,514
|
)
|
Net realized gain from investments
|
|
|
(1,397,494
|
)
|
|
|
(4,692,209
|
)
|
|
|
(2,429,923
|
)
|
Deferred taxes
|
|
|
(4,147,353
|
)
|
|
|
3,025,672
|
|
|
|
|
|
Changes in other assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
418,166
|
|
|
|
(876,945
|
)
|
|
|
(91,373
|
)
|
Interest payable
|
|
|
45,521
|
|
|
|
207,731
|
|
|
|
83,459
|
|
Accounts payable and other liabilities
|
|
|
828,098
|
|
|
|
394,510
|
|
|
|
76,543
|
|
Deferred debt origination fees received
|
|
|
612,143
|
|
|
|
467,558
|
|
|
|
709,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
10,912,691
|
|
|
|
5,404,917
|
|
|
|
4,243,863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTMENT ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in portfolio companies
|
|
|
(47,698,567
|
)
|
|
|
(29,479,023
|
)
|
|
|
(28,088,005
|
)
|
Investments in idle funds
|
|
|
(4,218,704
|
)
|
|
|
(24,063,261
|
)
|
|
|
|
|
Principal payments received on loans and debt securities
|
|
|
16,300,750
|
|
|
|
9,614,338
|
|
|
|
12,199,956
|
|
Proceeds from sale of equity securities and related notes
|
|
|
8,029,339
|
|
|
|
5,934,420
|
|
|
|
5,021,313
|
|
Proceeds from idle funds investments
|
|
|
24,063,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investment activities
|
|
|
(3,523,921
|
)
|
|
|
(37,993,526
|
)
|
|
|
(10,866,736
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from initial public offering/capitalization
|
|
|
|
|
|
|
60,183,997
|
|
|
|
|
|
Proceeds from capital contributions
|
|
|
|
|
|
|
300,081
|
|
|
|
355,089
|
|
Purchase of treasury stock
|
|
|
(331,006
|
)
|
|
|
|
|
|
|
|
|
Payment of distributions to members and partners
|
|
|
|
|
|
|
(6,500,000
|
)
|
|
|
(6,174,297
|
)
|
Payment of dividends to stockholders
|
|
|
(13,181,074
|
)
|
|
|
(1,009,704
|
)
|
|
|
|
|
Proceeds from issuance of SBIC debentures
|
|
|
|
|
|
|
9,900,000
|
|
|
|
|
|
Payment of initial public offering costs
|
|
|
|
|
|
|
(1,642,573
|
)
|
|
|
|
|
Payment of deferred loan costs and SBIC debenture fees
|
|
|
(391,188
|
)
|
|
|
(522,587
|
)
|
|
|
(50,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(13,903,268
|
)
|
|
|
60,709,214
|
|
|
|
(5,869,208
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(6,514,498
|
)
|
|
|
28,120,605
|
|
|
|
(12,492,081
|
)
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
|
|
41,889,324
|
|
|
|
13,768,719
|
|
|
|
26,260,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
|
$
|
35,374,826
|
|
|
$
|
41,889,324
|
|
|
$
|
13,768,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements
F-7
MAIN
STREET CAPITAL CORPORATION
December 31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio Company/Type of Investment(1)(2)
|
|
Industry
|
|
Principal(6)
|
|
|
Cost(6)
|
|
|
Fair Value
|
|
|
Control Investments(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Café Brazil, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12% Secured Debt (Maturity April 20, 2011)
|
|
Casual Restaurant Group
|
|
$
|
2,750,000
|
|
|
$
|
2,728,113
|
|
|
$
|
2,750,000
|
|
Member Units(7) (Fully diluted 42.3%)
|
|
|
|
|
|
|
|
|
41,837
|
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,769,950
|
|
|
|
3,750,000
|
|
CBT Nuggets, LLC
|
|
Produces and Sells
|
|
|
|
|
|
|
|
|
|
|
|
|
14% Secured Debt (Maturity June 1, 2011)
|
|
IT Certification
|
|
|
1,680,000
|
|
|
|
1,642,518
|
|
|
|
1,680,000
|
|
10% Secured Debt (Maturity December 31, 2009)
|
|
Training Videos
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
150,000
|
|
Member Units(7) (Fully diluted 29.1%)
|
|
|
|
|
|
|
|
|
432,000
|
|
|
|
1,625,000
|
|
Warrants (Fully diluted 10.5%)
|
|
|
|
|
|
|
|
|
72,000
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,296,518
|
|
|
|
3,955,000
|
|
Ceres Management, LLC (Lambs)
|
|
Aftermarket Automotive
|
|
|
|
|
|
|
|
|
|
|
|
|
14% Secured Debt (Maturity May 31, 2013)
|
|
Services Chain
|
|
|
2,400,000
|
|
|
|
2,372,601
|
|
|
|
2,372,601
|
|
Member Units (Fully diluted 42.0%)
|
|
|
|
|
|
|
|
|
1,200,000
|
|
|
|
1,300,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,572,601
|
|
|
|
3,672,601
|
|
Condit Exhibits, LLC
|
|
Tradeshow Exhibits/
|
|
|
|
|
|
|
|
|
|
|
|
|
13% current / 5% PIK Secured Debt (Maturity
July 1, 2013)
|
|
Custom Displays
|
|
|
2,308,073
|
|
|
|
2,273,194
|
|
|
|
2,273,194
|
|
Warrants (Fully diluted 28.1%)
|
|
|
|
|
|
|
|
|
300,000
|
|
|
|
300,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,573,194
|
|
|
|
2,573,194
|
|
Gulf Manufacturing, LLC
|
|
Industrial Metal
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime plus 1% Secured Debt (Maturity August 31,
2012)
|
|
Fabrication
|
|
|
1,200,000
|
|
|
|
1,190,764
|
|
|
|
1,200,000
|
|
13% Secured Debt (Maturity August 31, 2012)
|
|
|
|
|
1,900,000
|
|
|
|
1,747,777
|
|
|
|
1,880,000
|
|
Member Units(7) (Fully diluted 18.6%)
|
|
|
|
|
|
|
|
|
472,000
|
|
|
|
1,100,000
|
|
Warrants (Fully diluted 8.4%)
|
|
|
|
|
|
|
|
|
160,000
|
|
|
|
550,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,570,541
|
|
|
|
4,730,000
|
|
Hawthorne Customs & Dispatch Services, LLC
|
|
Transportation/
|
|
|
|
|
|
|
|
|
|
|
|
|
13% Secured Debt (Maturity January 31, 2011)
|
|
Logistics
|
|
|
1,200,000
|
|
|
|
1,171,988
|
|
|
|
1,171,988
|
|
Member Units(7) (Fully diluted 27.8%)
|
|
|
|
|
|
|
|
|
375,000
|
|
|
|
435,000
|
|
Warrants (Fully diluted 16.5%)
|
|
|
|
|
|
|
|
|
37,500
|
|
|
|
230,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,584,488
|
|
|
|
1,836,988
|
|
Hydratec Holdings, LLC
|
|
Agricultural Services
|
|
|
|
|
|
|
|
|
|
|
|
|
12.5% Secured Debt (Maturity October 31, 2012)
|
|
|
|
|
5,400,000
|
|
|
|
5,311,329
|
|
|
|
5,311,329
|
|
Prime plus 1% Secured Debt (Maturity
October 31, 2012)
|
|
|
|
|
1,595,244
|
|
|
|
1,579,911
|
|
|
|
1,579,911
|
|
Member Units (Fully diluted 60%)
|
|
|
|
|
|
|
|
|
1,800,000
|
|
|
|
2,050,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,691,240
|
|
|
|
8,941,240
|
|
Jensen Jewelers of Idaho, LLC
|
|
Retail Jewelry
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime Plus 2% Secured Debt (Maturity
November 14, 2011)
|
|
|
|
|
1,044,000
|
|
|
|
1,030,957
|
|
|
|
1,044,000
|
|
13% current / 6% PIK Secured Debt (Maturity
November 14, 2011)
|
|
|
|
|
1,004,591
|
|
|
|
986,980
|
|
|
|
1,004,591
|
|
Member Units(7) (Fully diluted 24.3%)
|
|
|
|
|
|
|
|
|
376,000
|
|
|
|
380,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,393,937
|
|
|
|
2,428,591
|
|
NAPCO Precast, LLC
|
|
Precast Concrete
|
|
|
|
|
|
|
|
|
|
|
|
|
18% Secured Debt (Maturity February 1, 2013)
|
|
Manufacturing
|
|
|
6,461,538
|
|
|
|
6,348,011
|
|
|
|
6,461,538
|
|
Prime Plus 2% Secured Debt (Maturity
February 1, 2013)(8)
|
|
|
|
|
3,692,308
|
|
|
|
3,660,945
|
|
|
|
3,692,308
|
|
Member Units(7) (Fully diluted 36.1%)
|
|
|
|
|
|
|
|
|
2,000,000
|
|
|
|
5,100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,008,956
|
|
|
|
15,253,846
|
|
OMi Holdings, Inc.
|
|
Manufacturer of
|
|
|
|
|
|
|
|
|
|
|
|
|
12% Secured Debt (Maturity April 1, 2013)
|
|
Overhead Cranes
|
|
|
6,660,000
|
|
|
|
6,603,400
|
|
|
|
6,603,400
|
|
Common Stock (Fully diluted 28.8%)
|
|
|
|
|
|
|
|
|
900,000
|
|
|
|
570,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,503,400
|
|
|
|
7,173,400
|
|
F-8
MAIN
STREET CAPITAL CORPORATION
CONSOLIDATED
SCHEDULE OF
INVESTMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio Company/Type of Investment(1)(2)
|
|
Industry
|
|
Principal(6)
|
|
|
Cost(6)
|
|
|
Fair Value
|
|
|
Quest Design & Production, LLC
|
|
Design and Fabrication
|
|
|
|
|
|
|
|
|
|
|
|
|
10% Secured Debt (Maturity June 30, 2013)
|
|
of Custom Display
|
|
|
600,000
|
|
|
|
465,060
|
|
|
|
600,000
|
|
0% Secured Debt (Maturity June 30, 2013)
|
|
Systems
|
|
|
2,000,000
|
|
|
|
2,000,000
|
|
|
|
1,400,000
|
|
Warrants (Fully diluted 40.0%)
|
|
|
|
|
|
|
|
|
1,595,858
|
|
|
|
|
|
Warrants (Fully diluted 20.0%)
|
|
|
|
|
|
|
|
|
40,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,100,918
|
|
|
|
2,000,000
|
|
Universal Scaffolding & Equipment, LLC
|
|
Manufacturer of Scaffolding
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime plus 1% Secured Debt (Maturity August 17,
2012)(8)
|
|
and Shoring Equipment
|
|
|
881,833
|
|
|
|
875,072
|
|
|
|
875,072
|
|
13% current / 5% PIK Secured Debt (Maturity
August 17, 2012)
|
|
|
|
|
3,362,698
|
|
|
|
3,311,508
|
|
|
|
3,160,000
|
|
Member Units (Fully diluted 18.4%)
|
|
|
|
|
|
|
|
|
992,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,178,643
|
|
|
|
4,035,072
|
|
Uvalco Supply, LLC
|
|
Farm and Ranch Supply
|
|
|
|
|
|
|
|
|
|
|
|
|
Member Units (Fully diluted 39.6%)
|
|
|
|
|
|
|
|
|
905,743
|
|
|
|
1,575,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zieglers NYPD, LLC
|
|
Restaurant
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime plus 2% Secured Debt (Maturity October 1,
2013)(8)
|
|
|
|
|
600,000
|
|
|
|
594,239
|
|
|
|
594,239
|
|
13% current / 5% PIK Secured Debt (Maturity
October 1, 2013)
|
|
|
|
|
2,704,262
|
|
|
|
2,663,437
|
|
|
|
2,663,437
|
|
Warrants (Fully diluted 28.6%)
|
|
|
|
|
|
|
|
|
360,000
|
|
|
|
360,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,617,676
|
|
|
|
3,617,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Control Investments
|
|
|
|
|
|
|
|
|
60,767,805
|
|
|
|
65,542,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliate Investments(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advantage Millwork Company, Inc.
|
|
Manufacturer/Distributor
|
|
|
|
|
|
|
|
|
|
|
|
|
12% Secured Debt (Maturity February 5, 2012)
|
|
of Wood Doors
|
|
|
3,066,667
|
|
|
|
2,955,442
|
|
|
|
2,955,442
|
|
Warrants (Fully diluted 12.2%)
|
|
|
|
|
|
|
|
|
97,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,053,250
|
|
|
|
2,955,442
|
|
American Sensor Technologies, Inc.
|
|
Manufacturer of Commercial/
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime plus 0.5% Secured Debt (Maturity May 31,
2010)(8)
|
|
Industrial Sensors
|
|
|
3,800,000
|
|
|
|
3,800,000
|
|
|
|
3,800,000
|
|
Warrants (Fully diluted 20.0%)
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,850,000
|
|
|
|
4,050,000
|
|
Carlton Global Resources, LLC
|
|
Processor of
|
|
|
|
|
|
|
|
|
|
|
|
|
13% PIK Secured Debt (Maturity November 15,
2011)
|
|
Industrial Minerals
|
|
|
4,791,944
|
|
|
|
4,655,836
|
|
|
|
|
|
Member Units (Fully diluted 8.5%)
|
|
|
|
|
|
|
|
|
400,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,055,836
|
|
|
|
|
|
California Healthcare Medical Billing, Inc.
|
|
Healthcare
|
|
|
|
|
|
|
|
|
|
|
|
|
12% Secured Debt (Maturity October 17, 2013)
|
|
Services
|
|
|
1,410,000
|
|
|
|
1,141,706
|
|
|
|
1,141,706
|
|
Common Stock (Fully diluted 6%)
|
|
|
|
|
|
|
|
|
390,000
|
|
|
|
390,000
|
|
Warrants (Fully diluted 12%)
|
|
|
|
|
|
|
|
|
240,000
|
|
|
|
240,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,771,706
|
|
|
|
1,771,706
|
|
Houston Plating & Coatings, LLC
|
|
Plating & Industrial
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime plus 2% Secured Debt (Maturity July 18,
2013)
|
|
Coating Services
|
|
|
300,000
|
|
|
|
300,000
|
|
|
|
300,000
|
|
Member Units(7) (Fully diluted 11.1%)
|
|
|
|
|
|
|
|
|
210,000
|
|
|
|
2,750,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
510,000
|
|
|
|
3,050,000
|
|
KBK Industries, LLC
|
|
Specialty Manufacturer
|
|
|
|
|
|
|
|
|
|
|
|
|
14% Secured Debt (Maturity January 23, 2011)
|
|
of Oilfield and
|
|
|
3,937,500
|
|
|
|
3,787,758
|
|
|
|
3,937,500
|
|
8% Secured Debt (Maturity March 1, 2010)
|
|
Industrial Products
|
|
|
468,750
|
|
|
|
468,750
|
|
|
|
468,750
|
|
8% Secured Debt (Maturity March 31, 2009)
|
|
|
|
|
450,000
|
|
|
|
450,000
|
|
|
|
450,000
|
|
Member Units(7) (Fully diluted 14.5%)
|
|
|
|
|
|
|
|
|
187,500
|
|
|
|
775,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,894,008
|
|
|
|
5,631,250
|
|
Laurus Healthcare, LP
|
|
Healthcare Facilities
|
|
|
|
|
|
|
|
|
|
|
|
|
13% Secured Debt (Maturity May 7, 2009)
|
|
|
|
|
2,275,000
|
|
|
|
2,259,664
|
|
|
|
2,275,000
|
|
Warrants (Fully diluted 17.5%)
|
|
|
|
|
|
|
|
|
105,000
|
|
|
|
2,500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,364,664
|
|
|
|
4,775,000
|
|
F-9
MAIN
STREET CAPITAL CORPORATION
CONSOLIDATED
SCHEDULE OF
INVESTMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio Company/Type of Investment(1)(2)
|
|
Industry
|
|
Principal(6)
|
|
|
Cost(6)
|
|
|
Fair Value
|
|
|
National Trench Safety, LLC
|
|
Trench & Traffic
|
|
|
|
|
|
|
|
|
|
|
|
|
10% PIK Debt (Maturity April 16, 2014)
|
|
Safety Equipment
|
|
|
404,256
|
|
|
|
404,256
|
|
|
|
404,256
|
|
Member Units (Fully diluted 11.7%)
|
|
|
|
|
|
|
|
|
1,792,308
|
|
|
|
1,792,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,196,564
|
|
|
|
2,196,564
|
|
Pulse Systems, LLC
|
|
Manufacturer of
|
|
|
|
|
|
|
|
|
|
|
|
|
14% Secured Debt (Maturity June 1, 2009)
|
|
Components for
|
|
|
1,831,274
|
|
|
|
1,819,464
|
|
|
|
1,831,274
|
|
Warrants (Fully diluted 7.4%)
|
|
Medical Devices
|
|
|
|
|
|
|
132,856
|
|
|
|
450,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,952,320
|
|
|
|
2,281,274
|
|
Schneider Sales Management, LLC
|
|
Sales Consulting
|
|
|
|
|
|
|
|
|
|
|
|
|
13% Secured Debt (Maturity October 15, 2013)
|
|
and Training
|
|
|
1,980,000
|
|
|
|
1,909,972
|
|
|
|
1,909,972
|
|
Warrants (Fully diluted 12.0%)
|
|
|
|
|
|
|
|
|
45,000
|
|
|
|
45,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,954,972
|
|
|
|
1,954,972
|
|
Vision Interests, Inc.
|
|
Manufacturer/
|
|
|
|
|
|
|
|
|
|
|
|
|
13% Secured Debt (Maturity June 5, 2012)
|
|
Installer of Commercial
|
|
|
3,760,000
|
|
|
|
3,579,117
|
|
|
|
3,579,117
|
|
Common Stock (Fully diluted 8.9%)
|
|
Signage
|
|
|
|
|
|
|
372,000
|
|
|
|
420,000
|
|
Warrants (Fully diluted 11.2%)
|
|
|
|
|
|
|
|
|
160,000
|
|
|
|
420,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,111,117
|
|
|
|
4,419,117
|
|
Walden Smokey Point, Inc.
|
|
Specialty Transportation/
|
|
|
|
|
|
|
|
|
|
|
|
|
14% current / 4% PIK Secured Debt (Maturity
December 30, 2013)
|
|
Logistics
|
|
|
4,800,533
|
|
|
|
4,704,533
|
|
|
|
4,704,533
|
|
Common Stock (Fully diluted 7.6%)
|
|
|
|
|
|
|
|
|
600,000
|
|
|
|
600,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,304,533
|
|
|
|
5,304,533
|
|
WorldCall, Inc.
|
|
Telecommunication/
|
|
|
|
|
|
|
|
|
|
|
|
|
13% Secured Debt (Maturity October 22, 2009)
|
|
Information Services
|
|
|
646,225
|
|
|
|
631,199
|
|
|
|
640,000
|
|
Common Stock (Fully diluted 9.9%)
|
|
|
|
|
|
|
|
|
296,631
|
|
|
|
382,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
927,830
|
|
|
|
1,022,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Affiliate Investments
|
|
|
|
|
|
|
|
|
37,946,800
|
|
|
|
39,412,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Control/Non-Affiliate Investments(5):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East Teak Fine Hardwoods, Inc.
|
|
Hardwood Products
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock (Fully diluted 3.3%)
|
|
|
|
|
|
|
|
|
130,000
|
|
|
|
490,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hayden Acquisition, LLC
|
|
Manufacturer of
|
|
|
|
|
|
|
|
|
|
|
|
|
8% Secured Debt (Maturity March 9, 2009)
|
|
Utility Structures
|
|
|
1,800,000
|
|
|
|
1,781,303
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Support Systems Homes, Inc.
|
|
Manages Substance
|
|
|
|
|
|
|
|
|
|
|
|
|
15% Secured Debt
|
|
Abuse Treatment
|
|
|
|
|
|
|
|
|
|
|
|
|
(Maturity August 21, 2018)
|
|
Centers
|
|
|
226,589
|
|
|
|
226,589
|
|
|
|
226,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technical Innovations, LLC
|
|
Manufacturer of Specialty
|
|
|
|
|
|
|
|
|
|
|
|
|
7% Secured Debt (Maturity August 31, 2009)
|
|
Cutting Tools and Punches
|
|
|
416,364
|
|
|
|
409,297
|
|
|
|
409,297
|
|
13.5% Secured Debt (Maturity January 16, 2015)
|
|
|
|
|
3,750,000
|
|
|
|
3,698,216
|
|
|
|
3,750,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,107,513
|
|
|
|
4,159,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Non-Control/Non-Affiliate Investments
|
|
|
|
|
|
|
|
|
6,245,405
|
|
|
|
5,375,886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Main Street Capital Partners, LLC (Investment Manager)
|
|
Asset Management
|
|
|
|
|
|
|
|
|
|
|
|
|
100% of Membership Interests
|
|
|
|
|
|
|
|
|
18,000,000
|
|
|
|
16,675,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Portfolio Investments, December 31, 2008
|
|
|
|
|
|
|
|
$
|
122,960,010
|
|
|
$
|
127,006,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Idle Funds Investments
|
|
Investments in High-Quality
|
|
|
|
|
|
|
|
|
|
|
|
|
8.3% General Electric Capital Corporate Bond
|
|
Debt Investments and
|
|
|
1,218,704
|
|
|
|
1,218,704
|
|
|
|
1,218,704
|
|
(Maturity September 20, 2009)
|
|
Diversified Bond Funds
|
|
|
|
|
|
|
|
|
|
|
|
|
4.50% National City Bank Bond
|
|
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
(Maturity March 15, 2010)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vanguard High-Yield Corp Fund Admiral Shares
|
|
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
1,086,514
|
|
Vanguard Long-Term Investment-Grade Fund Admiral Shares
|
|
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
1,084,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,218,704
|
|
|
$
|
4,389,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-10
MAIN
STREET CAPITAL CORPORATION
CONSOLIDATED
SCHEDULE OF
INVESTMENTS (Continued)
|
|
|
(1) |
|
Debt investments are generally income producing. Equity and
warrants are non-income producing, unless otherwise noted. |
|
(2) |
|
See Note C for summary geographic location of portfolio
companies. |
|
(3) |
|
Controlled investments are defined by the Investment Company
Act of 1940, as amended (1940 Act) as investments in
which more than 25% of the voting securities are owned or where
the ability to nominate greater than 50% of the board
representation is maintained. |
|
(4) |
|
Affiliate investments are defined by the 1940 Act as
investments in which between 5% and 25% of the voting securities
are owned. |
|
(5) |
|
Non-Control/Non-Affiliate investments are defined by the 1940
Act as investments that are neither Control Investments nor
Affiliate Investments. |
|
(6) |
|
Principal is net of prepayments. Cost is net of prepayments
and accumulated unearned income. |
|
(7) |
|
Income producing through payment of dividends or
distributions. |
|
(8) |
|
Subject to contractual minimum rates. |
F-11
MAIN
STREET CAPITAL CORPORATION
SCHEDULE OF
INVESTMENTS
December 31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio Company/Type of Investment(1)(2)
|
|
Industry
|
|
Principal(6)
|
|
|
Cost(6)
|
|
|
Fair Value
|
|
|
Control Investments(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Café Brazil, LLC
|
|
Casual Restaurant
|
|
|
|
|
|
|
|
|
|
|
|
|
12% Secured Debt (Maturity April 20, 2009)
|
|
Group
|
|
$
|
2,750,000
|
|
|
$
|
2,702,931
|
|
|
$
|
2,702,931
|
|
Member Units(7) (Fully diluted 42.3%)
|
|
|
|
|
|
|
|
|
41,837
|
|
|
|
1,250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,744,768
|
|
|
|
3,952,931
|
|
CBT Nuggets , LLC
|
|
Produces and Sells
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime plus 2% Secured Debt (Maturity June 1,
2011)
|
|
IT Certification
|
|
|
360,000
|
|
|
|
354,678
|
|
|
|
354,678
|
|
14% Secured Debt (Maturity June 1, 2011)
|
|
Training Videos
|
|
|
1,860,000
|
|
|
|
1,805,275
|
|
|
|
1,805,275
|
|
Member Units (Fully diluted 29.1%)
|
|
|
|
|
|
|
|
|
432,000
|
|
|
|
1,145,000
|
|
Warrants (Fully diluted 10.5%)
|
|
|
|
|
|
|
|
|
72,000
|
|
|
|
345,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,663,953
|
|
|
|
3,649,953
|
|
Gulf Manufacturing, LLC
|
|
Industrial Metal
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime plus 1% Secured Debt (Maturity August 31,
2012)
|
|
Fabrication
|
|
|
1,200,000
|
|
|
|
1,188,636
|
|
|
|
1,188,636
|
|
13% Secured Debt (Maturity August 31, 2012)
|
|
|
|
|
2,000,000
|
|
|
|
1,809,216
|
|
|
|
1,809,216
|
|
Member Units (Fully diluted 18.4%)
|
|
|
|
|
|
|
|
|
472,000
|
|
|
|
472,000
|
|
Warrants (Fully diluted 8.4%)
|
|
|
|
|
|
|
|
|
160,000
|
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,629,852
|
|
|
|
3,719,852
|
|
Hawthorne Customs & Dispatch Services , LLC
|
|
Transportation/
|
|
|
|
|
|
|
|
|
|
|
|
|
13% Secured Debt (Maturity January 31, 2011)
|
|
Logistics
|
|
|
1,350,000
|
|
|
|
1,304,693
|
|
|
|
1,304,693
|
|
Member Units(7) (Fully diluted 27.8%)
|
|
|
|
|
|
|
|
|
375,000
|
|
|
|
435,000
|
|
Warrants (Fully diluted 16.5%)
|
|
|
|
|
|
|
|
|
37,500
|
|
|
|
230,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,717,193
|
|
|
|
1,969,693
|
|
Hayden Acquisition, LLC
|
|
Manufacturer of
|
|
|
|
|
|
|
|
|
|
|
|
|
12% Secured Debt (Maturity March 9, 2009)
|
|
Utility Structures
|
|
|
1,955,000
|
|
|
|
1,901,040
|
|
|
|
1,901,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hydratec Holdings, LLC
|
|
Agricultural Services
|
|
|
|
|
|
|
|
|
|
|
|
|
12.5% Secured Debt (Maturity October 31, 2012)
|
|
|
|
|
5,700,000
|
|
|
|
5,588,729
|
|
|
|
5,588,729
|
|
Prime plus 1% Secured Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Maturity October 31, 2012)
|
|
|
|
|
1,845,244
|
|
|
|
1,825,911
|
|
|
|
1,825,911
|
|
Member Units (Fully diluted 60%)
|
|
|
|
|
|
|
|
|
1,800,000
|
|
|
|
1,800,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,214,640
|
|
|
|
9,214,640
|
|
Jensen Jewelers of Idaho, LLC
|
|
Retail Jewelry
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime Plus 2% Secured Debt (Maturity
November 14, 2011)
|
|
|
|
|
1,200,000
|
|
|
|
1,180,509
|
|
|
|
1,180,509
|
|
13% current / 6% PIK Secured Debt (Maturity
November 14, 2011)
|
|
|
|
|
1,069,457
|
|
|
|
1,044,190
|
|
|
|
1,044,190
|
|
Member Units(7) (Fully diluted 25.1%)
|
|
|
|
|
|
|
|
|
376,000
|
|
|
|
815,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,600,699
|
|
|
|
3,039,699
|
|
Magna Card, Inc.
|
|
Wholesale/Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
12% current / 0.4% PIK Secured Debt (Maturity
September 30, 2010)
|
|
Magnetic Products
|
|
|
2,021,079
|
|
|
|
1,958,775
|
|
|
|
|
|
Warrants (Fully diluted 35.8%)
|
|
|
|
|
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,058,775
|
|
|
|
|
|
Quest Design & Production, LLC
|
|
Design and Fabrication
|
|
|
|
|
|
|
|
|
|
|
|
|
8% current / 5% PIK Secured Debt (Maturity
December 31, 2010)
|
|
of Custom Display Systems
|
|
|
3,991,542
|
|
|
|
3,964,853
|
|
|
|
3,964,853
|
|
Warrants (Fully diluted 26.0%)
|
|
|
|
|
|
|
|
|
40,000
|
|
|
|
40,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,004,853
|
|
|
|
4,004,853
|
|
TA Acquisition Group, LP
|
|
Processor of
|
|
|
|
|
|
|
|
|
|
|
|
|
12% Secured Debt (Maturity July 29, 2010)
|
|
Construction
|
|
|
1,870,000
|
|
|
|
1,813,789
|
|
|
|
1,813,789
|
|
Partnership Interest(7) (Fully diluted 18.3%)
|
|
Aggregates
|
|
|
|
|
|
|
357,500
|
|
|
|
3,435,000
|
|
Warrants (Fully diluted 18.3%)
|
|
|
|
|
|
|
|
|
82,500
|
|
|
|
3,450,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,253,789
|
|
|
|
8,698,789
|
|
F-12
MAIN
STREET CAPITAL CORPORATION
SCHEDULE OF
INVESTMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio Company/Type of Investment(1)(2)
|
|
Industry
|
|
Principal(6)
|
|
|
Cost(6)
|
|
|
Fair Value
|
|
|
Technical Innovations , LLC
|
|
Manufacturer of
|
|
|
|
|
|
|
|
|
|
|
|
|
12% Secured Debt (Maturity October 31, 2009)
|
|
Specialty Cutting
|
|
|
787,500
|
|
|
|
748,716
|
|
|
|
748,716
|
|
Prime Secured Debt (Maturity October 31, 2009)
|
|
Tools and Punches
|
|
|
262,500
|
|
|
|
249,572
|
|
|
|
249,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
998,288
|
|
|
|
998,288
|
|
Universal Scaffolding & Equipment, LLC
|
|
Manufacturer of Scaffolding
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime plus 1% Secured Debt (Maturity August 16,
2012)
|
|
and Shoring Equipment
|
|
|
1,122,333
|
|
|
|
1,111,741
|
|
|
|
1,111,741
|
|
13% current / 5% PIK Secured Debt (Maturity
August 16, 2012)
|
|
|
|
|
3,196,376
|
|
|
|
3,136,274
|
|
|
|
3,136,274
|
|
Member Units (Fully diluted 18.4%)
|
|
|
|
|
|
|
|
|
992,063
|
|
|
|
1,025,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,240,078
|
|
|
|
5,273,015
|
|
Wicks N More, LLC
|
|
Manufacturer of
|
|
|
|
|
|
|
|
|
|
|
|
|
12% Secured Debt (Maturity April 26, 2011)
|
|
High-end Candles
|
|
|
3,720,000
|
|
|
|
3,455,444
|
|
|
|
1,685,444
|
|
Member Units (Fully diluted 11.5%)
|
|
|
|
|
|
|
|
|
360,000
|
|
|
|
|
|
Warrants (Fully diluted 21.3%)
|
|
|
|
|
|
|
|
|
210,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,025,444
|
|
|
|
1,685,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Control Investments
|
|
|
|
|
|
|
|
|
43,053,372
|
|
|
|
48,108,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliate Investments(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advantage Millwork Company, Inc.
|
|
Manufacturer/Distributor
|
|
|
|
|
|
|
|
|
|
|
|
|
12% Secured Debt (Maturity February 5, 2012)
|
|
of Wood Doors
|
|
|
2,666,667
|
|
|
|
2,547,510
|
|
|
|
2,547,510
|
|
Warrants (Fully diluted 10.9%)
|
|
|
|
|
|
|
|
|
87,120
|
|
|
|
87,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,634,630
|
|
|
|
2,634,630
|
|
American Sensor Technologies, Inc.
|
|
Manufacturer of Commercial/
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime plus 0.5% Secured Debt (Maturity May 31,
2010)
|
|
Industrial Sensors
|
|
|
3,500,000
|
|
|
|
3,404,755
|
|
|
|
3,404,755
|
|
Warrants (Fully diluted 20.0%)
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
750,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,454,755
|
|
|
|
4,154,755
|
|
Carlton Global Resources, LLC
|
|
Processor of
|
|
|
|
|
|
|
|
|
|
|
|
|
13% PIK Secured Debt (Maturity November 15,
2011)
|
|
Industrial Minerals
|
|
|
4,687,777
|
|
|
|
4,555,835
|
|
|
|
2,618,421
|
|
Member Units (Fully diluted 8.5%)
|
|
|
|
|
|
|
|
|
400,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,955,835
|
|
|
|
2,618,421
|
|
Houston Plating & Coatings, LLC
|
|
Plating & Industrial
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime plus 2% Secured Debt (Maturity July 19,
2011)
|
|
Coating Services
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
100,000
|
|
Member Units(7) (Fully diluted 11.8%)
|
|
|
|
|
|
|
|
|
210,000
|
|
|
|
2,450,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
310,000
|
|
|
|
2,550,000
|
|
KBK Industries, LLC
|
|
Specialty Manufacturer of
|
|
|
|
|
|
|
|
|
|
|
|
|
14% Secured Debt (Maturity January 23, 2011)
|
|
Oilfield and Industrial
|
|
|
3,937,500
|
|
|
|
3,730,881
|
|
|
|
3,730,881
|
|
8% Secured Debt (Maturity July 1, 2009)
|
|
Products
|
|
|
623,063
|
|
|
|
623,063
|
|
|
|
623,063
|
|
Prime Plus 2% Secured Debt (Maturity
January 31, 2008)
|
|
|
|
|
|
|
|
|
75,000
|
|
|
|
686,250
|
|
Member Units(7) (Fully diluted 14.5%)
|
|
|
|
|
|
|
|
|
187,500
|
|
|
|
700,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,616,444
|
|
|
|
5,740,194
|
|
Laurus Healthcare, LP
|
|
Healthcare Facilities
|
|
|
|
|
|
|
|
|
|
|
|
|
13% Secured Debt (Maturity May 7, 2009)
|
|
|
|
|
3,010,000
|
|
|
|
2,934,625
|
|
|
|
2,934,625
|
|
Warrants (Fully diluted 18.2%)
|
|
|
|
|
|
|
|
|
105,000
|
|
|
|
715,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,039,625
|
|
|
|
3,649,625
|
|
F-13
MAIN
STREET CAPITAL CORPORATION
SCHEDULE OF
INVESTMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio Company/Type of Investment(1)(2)
|
|
Industry
|
|
Principal(6)
|
|
|
Cost(6)
|
|
|
Fair Value
|
|
|
National Trench Safety, LLC
|
|
Trench & Traffic
|
|
|
|
|
|
|
|
|
|
|
|
|
10% PIK Debt (Maturity April 16, 2014)
|
|
Safety Equipment
|
|
|
365,334
|
|
|
|
314,805
|
|
|
|
314,805
|
|
Member Units (Fully diluted 10.9%)
|
|
|
|
|
|
|
|
|
1,792,308
|
|
|
|
1,792,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,107,113
|
|
|
|
2,107,113
|
|
Pulse Systems, LLC
|
|
Manufacturer of
|
|
|
|
|
|
|
|
|
|
|
|
|
14% Secured Debt (Maturity June 1, 2009)
|
|
Components for
|
|
|
2,307,498
|
|
|
|
2,260,420
|
|
|
|
2,260,420
|
|
Warrants (Fully diluted 6.6%)
|
|
Medical Devices
|
|
|
|
|
|
|
118,000
|
|
|
|
350,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,378,420
|
|
|
|
2,610,420
|
|
Transportation General, Inc.
|
|
Taxi Cab/Transportation
|
|
|
|
|
|
|
|
|
|
|
|
|
13% Secured Debt (Maturity May 31, 2010)
|
|
Services
|
|
|
3,600,000
|
|
|
|
3,501,966
|
|
|
|
3,501,966
|
|
Warrants (Fully diluted 24.0%)
|
|
|
|
|
|
|
|
|
70,000
|
|
|
|
340,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,571,966
|
|
|
|
3,841,966
|
|
Turbine Air Systems, Ltd.
|
|
Commercial and
|
|
|
|
|
|
|
|
|
|
|
|
|
12% Secured Debt (Maturity October 11, 2011)
|
|
Industrial Chilling Systems
|
|
|
1,000,000
|
|
|
|
905,213
|
|
|
|
905,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vision Interests, Inc.
|
|
Manufacturer/
|
|
|
|
|
|
|
|
|
|
|
|
|
13% Secured Debt (Maturity June 5, 2012)
|
|
Installer of Commercial
|
|
|
3,760,000
|
|
|
|
3,541,662
|
|
|
|
3,541,662
|
|
Common Stock (Fully diluted 8.9%)
|
|
Signage
|
|
|
|
|
|
|
372,000
|
|
|
|
372,000
|
|
Warrants (Fully diluted 11.2%)
|
|
|
|
|
|
|
|
|
160,000
|
|
|
|
375,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,073,662
|
|
|
|
4,288,662
|
|
WorldCall, Inc.
|
|
Telecommunication/
|
|
|
|
|
|
|
|
|
|
|
|
|
13% Secured Debt (Maturity October 22, 2009)
|
|
Information Services
|
|
|
782,500
|
|
|
|
745,217
|
|
|
|
745,217
|
|
Common Stock (Fully diluted 6.2%)
|
|
|
|
|
|
|
|
|
169,173
|
|
|
|
180,000
|
|
Warrants (Fully diluted 13.4%)
|
|
|
|
|
|
|
|
|
75,000
|
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
989,390
|
|
|
|
1,075,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Affiliate Investments
|
|
|
|
|
|
|
|
|
33,037,053
|
|
|
|
36,176,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Control/Non-Affiliate Investments(5):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East Teak Fine Hardwoods, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13% Current/5.5% PIK Secured Debt (Maturity
April 13, 2011)
|
|
Hardwood Products
|
|
|
1,651,028
|
|
|
|
1,586,391
|
|
|
|
1,586,391
|
|
Common Stock (Fully diluted 3.3%)
|
|
|
|
|
|
|
|
|
130,000
|
|
|
|
490,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,716,391
|
|
|
|
2,076,391
|
|
Support Systems Homes, Inc.
|
|
Manages Substance
|
|
|
|
|
|
|
|
|
|
|
|
|
14% Current/4% PIK Secured Debt
|
|
Abuse Treatment
|
|
|
|
|
|
|
|
|
|
|
|
|
(Maturity June 5, 2012)
|
|
Centers
|
|
|
1,525,674
|
|
|
|
1,507,596
|
|
|
|
1,507,596
|
|
8% Secured Debt (Maturity June 5, 2012)
|
|
|
|
|
158,888
|
|
|
|
157,014
|
|
|
|
157,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,664,610
|
|
|
|
1,664,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Non-Control/Non-Affiliate Investments
|
|
|
|
|
|
|
|
|
3,381,001
|
|
|
|
3,741,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Main Street Capital Partners, LLC (Investment Manager)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100% of Membership Interests
|
|
Asset Management
|
|
|
|
|
|
|
18,000,000
|
|
|
|
17,625,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Portfolio Investments, December 31, 2007
|
|
|
|
|
|
|
|
$
|
97,471,426
|
|
|
$
|
105,650,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-14
MAIN
STREET CAPITAL CORPORATION
SCHEDULE OF
INVESTMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio Company/Type of Investment(1)(2)
|
|
Industry
|
|
Principal(6)
|
|
|
Cost(6)
|
|
|
Fair Value
|
|
|
Idle Funds Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.691% Federal Home Loan Bank Discount
|
|
Investments in U.S.
|
|
|
|
|
|
|
|
|
|
|
|
|
Note (Maturity April 11, 2008)
|
|
Agency Securities
|
|
|
3,500,000
|
|
|
$
|
3,421,791
|
|
|
$
|
3,421,791
|
|
4.691% Federal National Mortgage Association Discount
(Maturity April 2, 2008)
|
|
|
|
|
3,500,000
|
|
|
|
3,425,490
|
|
|
|
3,425,490
|
|
4.675% Federal Home Loan Bank Discount Note
(Maturity March 20, 2008)
|
|
|
|
|
3,500,000
|
|
|
|
3,431,089
|
|
|
|
3,431,089
|
|
4.668% Federal Home Loan Bank Discount Note
(Maturity March 5, 2008)
|
|
|
|
|
3,500,000
|
|
|
|
3,437,408
|
|
|
|
3,437,408
|
|
4.673% Federal Home Loan Bank Discount Note
(Maturity February 20, 2008)
|
|
|
|
|
3,500,000
|
|
|
|
3,443,197
|
|
|
|
3,443,197
|
|
4.77% Federal Home Loan Mortgage Corp Discount Note
(Maturity February 7, 2008)
|
|
|
|
|
3,500,000
|
|
|
|
3,448,948
|
|
|
|
3,448,948
|
|
4.64% Federal National Mortgage Association Discount
(Maturity January 23, 2008)
|
|
|
|
|
3,500,000
|
|
|
|
3,455,338
|
|
|
|
3,455,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Idle Funds Investments, December 31, 2007
|
|
|
|
|
|
|
|
$
|
24,063,261
|
|
|
$
|
24,063,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
All debt investments are generally income producing. Equity
and warrants are non-income producing, unless otherwise
noted. |
|
(2) |
|
See Note C for summary geographic location of portfolio
companies. |
|
(3) |
|
Controlled investments are defined by the Investment Company
Act of 1940, as amended (1940 Act) as investments in
which more than 25% of the voting securities are owned or where
the ability to nominate greater than 50% of the board
representation is maintained. |
|
(4) |
|
Affiliate investments are defined by the 1940 Act as
investments in which between 5% and 25% of the voting securities
are owned. |
|
(5) |
|
Non-Control/Non-Affiliate investments are defined by the 1940
Act as investments that are neither Control Investments nor
Affiliate Investments. |
|
(6) |
|
Principal is net of prepayments. Cost is net of prepayments
and accumulated unearned income. |
|
(7) |
|
Income producing through payment of dividends or
distributions. |
|
(8) |
|
Subject to contractual minimum rates. |
F-15
MAIN
STREET CAPITAL CORPORATION
|
|
NOTE A
|
ORGANIZATION AND BASIS OF PRESENTATION
|
Main Street Capital Corporation (MSCC) was formed on
March 9, 2007 for the purpose of (i) acquiring 100% of
the equity interests of Main Street Mezzanine Fund, LP (the
Fund) and its general partner, Main Street Mezzanine
Management, LLC (the General Partner),
(ii) acquiring 100% of the equity interests of Main Street
Capital Partners, LLC (the Investment Manager),
(iii) raising capital in an initial public offering, which
was completed in October 2007 (the IPO), and
(iv) thereafter operating as an internally-managed business
development company (BDC) under the Investment
Company Act of 1940, as amended (the 1940 Act). The
term Main Street refers to the Fund plus the General
Partner prior to the IPO and to Main Street Capital Corporation
and its subsidiaries, including the Fund and the General
Partner, after the IPO.
On October 2, 2007, prior to the IPO, the following
transactions were consummated (collectively, the Formation
Transactions):
|
|
|
|
|
MSCC acquired 100% of the limited partnership interests in the
Fund, which became a wholly-owned consolidated subsidiary of
MSCC; the Fund retained its Small Business Investment Company
(SBIC) license, continued to hold its existing
investments, and will make new investments with available funds;
|
|
|
|
MSCC acquired 100% of the equity interests in the General
Partner of the Fund, which became a wholly-owned consolidated
subsidiary of MSCC; and
|
|
|
|
MSCC acquired 100% of the equity interests in the Investment
Manager. The Investment Manager became a wholly-owned portfolio
company of MSCC under the 1940 Act, as the Investment Manager is
not an investment company and does not conduct substantially all
of its investment management activities for Main Street and its
subsidiaries. See Note D for further information regarding
this classification and accounting treatment.
|
Immediately following the Formation Transactions, Main Street
Equity Interests, Inc. (MSEI) was formed as a
wholly-owned consolidated subsidiary of MSCC. MSEI has elected
for tax purposes to be treated as a corporation and is taxed at
normal corporate tax rates based on its taxable income.
The financial statements are prepared in accordance with
accounting principles generally accepted in the United States of
America (U.S. GAAP). For the years ended
December 31, 2008 and 2007, the consolidated financial
statements of Main Street include the accounts of MSCC, the
Fund, MSEI and the General Partner. The Investment Manager is
accounted for as a portfolio investment. The Formation
Transactions involved an exchange of equity interests between
companies under common control. In accordance with the guidance
on exchanges of equity interests between entities under common
control contained in Statement of Financial Accounting Standards
(SFAS) No. 141, Business Combinations
(SFAS 141), Main Streets results of
operations and cash flows for the year ended December 31,
2007 are presented as if the Formation Transactions had occurred
as of January 1, 2007. Main Streets results of
operations for the years ended December 31, 2008 and 2007,
cash flows for the years ended December 31, 2008 and 2007
and financial positions as of December 31, 2008 and 2007
are presented on a consolidated basis. In addition, the results
of Main Streets operations and its cash flows for the year
ended December 31, 2006 have been presented on a combined
basis in order to provide comparative information with respect
to prior periods. The effects of all intercompany transactions
between Main Street and its subsidiaries have been eliminated in
consolidation. As a result of adopting the provisions of
SFAS No. 157, Fair Value Measurements
(SFAS 157), in the first quarter of 2008,
certain reclassifications have been made to prior period
balances to conform with the current financial statement
presentation.
F-16
MAIN
STREET CAPITAL CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Under the investment company rules and regulations pursuant to
Article 6 of
Regulation S-X
and the Audit and Accounting Guide for Investment Companies
issued by the American Institute of Certified Public Accountants
(the AICPA Guide), Main Street is precluded from
consolidating portfolio company investments, including those in
which it has a controlling interest, unless the portfolio
company is another investment company. An exception to this
general principle in the AICPA Guide occurs if the Fund owns a
controlled operating company that provides all or substantially
all of its services directly to Main Street or to an investment
company of Main Street. None of the investments made by Main
Street qualify for this exception. Therefore, the investments
are carried on the balance sheet at fair value, as discussed
further in Note B, with any adjustments to fair value
recognized as Net Change in Unrealized Appreciation
(Depreciation) from Investments on the Statement of
Operations until the investment is disposed of resulting in any
gain or loss on exit being recognized as a Net Realized
Gain (Loss) from Investments.
Portfolio
Investment Classification
Main Street classifies its portfolio investments in accordance
with the requirements of the 1940 Act. Under the 1940 Act,
Control Investments are defined as investments in
companies in which Main Street owns more than 25% of the voting
securities or has rights to maintain greater than 50% of the
board representation. Under the 1940 Act, Affiliate
Investments are defined as those investments in companies
in which Main Street owns between 5% and 25% of the voting
securities. Under the 1940 Act, Non-Control/Non-Affiliate
Investments are defined as investments that are neither
Control Investments nor Affiliate Investments. The
Investment in affiliated Investment Manager
represents Main Streets investment in a wholly-owned,
investment manager subsidiary that is accounted for as a
portfolio investment of Main Street.
|
|
NOTE B
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
|
|
1.
|
Valuation
of Portfolio Investments
|
Main Street accounts for its portfolio investments at fair
value. As a result, Main Street adopted the provisions of
SFAS 157 in the first quarter of 2008. SFAS 157
defines fair value, establishes a framework for measuring fair
value, establishes a fair value hierarchy based on the quality
of inputs used to measure fair value and enhances disclosure
requirements for fair value measurements. SFAS 157 requires
Main Street to assume that the portfolio investment is to be
sold in the principal market to market participants, or in the
absence of a principal market, in the most advantageous market,
which may be a hypothetical market. Market participants are
defined as buyers and sellers in the principal or most
advantageous market that are independent, knowledgeable, and
willing and able to transact. With the adoption of this
statement, Main Street incorporated the income approach to
estimate the fair value of its debt investments principally
using a
yield-to-maturity
model, resulting in the recognition of $0.7 million in
unrealized appreciation from ten debt investments upon adoption.
Prior to the adoption of SFAS 157, Main Street reported
unearned income as a single line item on the consolidated
balance sheets and consolidated schedule of investments.
Unearned income is no longer reported as a separate line and is
now part of the investment portfolio cost and fair value on the
consolidated balance sheets and the consolidated schedule of
investments. This change in presentation had no impact on the
overall net cost or fair value of Main Streets investment
portfolio and had no impact on Main Streets financial
position or results of operations.
Main Streets business plan calls for it to invest
primarily in illiquid securities issued by private companies
and/or
thinly traded public companies. These investments may be subject
to restrictions on resale and will generally have no established
trading market. As a result, Main Street determines in good
faith the fair value of its portfolio investments pursuant to a
valuation policy in accordance with SFAS 157 and a
valuation process approved by its Board of Directors and in
accordance with the 1940 Act. Main Street reviews external
events, including private mergers, sales and acquisitions
involving comparable companies,
F-17
MAIN
STREET CAPITAL CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and includes these events in the valuation process. Main
Streets valuation policy is intended to provide a
consistent basis for determining the fair value of the portfolio.
For valuation purposes, control investments are composed of
equity and debt securities for which Main Street has a
controlling interest in the portfolio company or has the ability
to nominate a majority of the portfolio companys board of
directors. Market quotations are generally not readily available
for Main Streets control investments. As a result, Main
Street determines the fair value of control investments using a
combination of market and income approaches. Under the market
approach, Main Street will typically use the enterprise value
methodology to determine the fair value of these investments.
The enterprise value is the fair value at which an enterprise
could be sold in a transaction between two willing parties,
other than through a forced or liquidation sale. Typically,
private companies are bought and sold based on multiples of
earnings before interest, taxes, depreciation and amortization,
or EBITDA, cash flows, net income, revenues, or in limited
cases, book value. There is no single methodology for estimating
enterprise value. For any one portfolio company, enterprise
value is generally described as a range of values from which a
single estimate of enterprise value is derived. In estimating
the enterprise value of a portfolio company, Main Street
analyzes various factors, including the portfolio companys
historical and projected financial results. Main Street
allocates the enterprise value to investments in order of the
legal priority of the investments. Main Street will also use the
income approach to determine the fair value of these securities,
based on projections of the discounted future free cash flows
that the portfolio company or the debt security will likely
generate. The valuation approaches for Main Streets
control investments estimate the value of the investment if it
were to sell, or exit, the investment, assuming the highest and
best use of the investment by market participants. In addition,
these valuation approaches consider the value associated with
Main Streets ability to control the capital structure of
the portfolio company, as well as the timing of a potential exit.
For valuation purposes, non-control investments are composed of
debt and equity securities for which Main Street does not have a
controlling interest in the portfolio company, or the ability to
nominate a majority of the portfolio companys board of
directors. Market quotations for Main Streets non-control
investments are not readily available. For Main Streets
non-control investments, Main Street uses the market approach to
value its equity investments and the income approach to value
its debt instruments. For non-control debt investments, Main
Street determines the fair value primarily using a yield
approach that analyzes the discounted cash flows of interest and
principal for the debt security, as set forth in the associated
loan agreements, as well as the financial position and credit
risk of each of these portfolio investments. Main Streets
estimate of the expected repayment date of a debt security is
generally the legal maturity date of the instrument, as Main
Street generally intends to hold its loans to maturity. The
yield analysis considers changes in leverage levels, credit
quality, portfolio company performance and other factors. Main
Street will use the value determined by the yield analysis as
the fair value for that security; however, because of Main
Streets general intent to hold its loans to maturity, the
fair value will not exceed the face amount of the debt security.
A change in the assumptions that Main Street uses to estimate
the fair value of its debt securities using the yield analysis
could have a material impact on the determination of fair value.
If there is deterioration in credit quality or a debt security
is in workout status, Main Street may consider other factors in
determining the fair value of a debt security, including the
value attributable to the debt security from the enterprise
value of the portfolio company or the proceeds that would be
received in a liquidation analysis.
Due to the inherent uncertainty in the valuation process, Main
Streets estimate of fair value may differ materially from
the values that would have been used had a ready market for the
securities existed. In addition, changes in the market
environment, portfolio company performance and other events that
may occur over the lives of the investments may cause the gains
or losses ultimately realized on these investments to be
different than the valuations currently assigned. Main Street
determines the fair value of each individual investment and
records changes in fair value as unrealized appreciation or
depreciation.
F-18
MAIN
STREET CAPITAL CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Main Street uses a standard investment ranking system in
connection with its investment oversight, portfolio
management/analysis and investment valuation procedures. This
system takes into account both quantitative and qualitative
factors of the portfolio company and the investments held. Each
quarter, Main Street estimates the fair value of each portfolio
investment, and the Board of Directors of Main Street oversees,
reviews and approves, in good faith, Main Streets fair
value estimates consistent with the 1940 Act requirements.
Duff & Phelps, LLC, an independent valuation firm
(Duff & Phelps), has provided third-party
valuation consulting services to Main Street, which consisted of
certain mutually agreed limited procedures that Main Street
identified and requested Duff & Phelps to perform
(hereinafter referred to as the Procedures). During
2008, the Procedures were performed on investments in 24
portfolio companies and on the investment in the Investment
Manager comprising approximately 84% of the total portfolio
investments at fair value as of December 31, 2008, with the
Procedures performed on investments in 5 portfolio companies for
the quarter ended March 31, 2008, investments in 8
portfolio companies for the quarter ended June 30, 2008, 5
portfolio companies for the quarter ended September 30,
2008 and 6 portfolio companies and the Investment Manager for
the quarter ended December 31, 2008. Duff &
Phelps had also reviewed a total of 24 portfolio companies
comprising approximately 77% of the total portfolio investments
at fair value as of December 31, 2007. Upon completion of
the Procedures in each case, Duff & Phelps concluded
that the fair value, as determined by Main Street, of those
investments subjected to the Procedures did not appear to be
unreasonable. The Board of Directors of Main Street has final
responsibility for overseeing, reviewing and approving, in good
faith, Main Streets estimate of the fair value for the
investments.
Main Street believes its investments as of December 31,
2008 and 2007 approximate fair value as of those dates based on
the market in which Main Street operates and other conditions in
existence at those reporting periods.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and
expenses during the period. Actual results may differ from these
estimates under different conditions or assumptions.
Additionally, as explained above, the financial statements
include portfolio investments whose values have been estimated
by Main Street with the oversight, review and approval by Main
Streets Board of Directors in the absence of readily
ascertainable market values. Because of the inherent uncertainty
of the portfolio investment valuations, those estimated values
may differ significantly from the values that would have been
used had a readily available market for the investments existed,
and it is reasonably possible that the differences could be
material.
|
|
3.
|
Cash and
Cash Equivalents
|
Cash and cash equivalents consist of highly liquid investments
with an original maturity of three months or less at the date of
purchase. Cash and cash equivalents are carried at cost, which
approximates fair value.
|
|
4.
|
Idle
Funds Investments
|
Idle funds investments consist primarily of short term
investments in U.S. government agency securities,
investments in high-quality debt investments and diversified
bond funds. With the exception of diversified bond funds, idle
funds investments generally mature in one year or less but
longer than three months from the time of investment, and
managements intent is to generally hold such investments
to maturity.
F-19
MAIN
STREET CAPITAL CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
5.
|
Interest
and Dividend Income
|
Interest and dividend income is recorded on the accrual basis to
the extent amounts are expected to be collected. Dividend income
is recorded as dividends are declared or at the point an
obligation exists for the portfolio company to make a
distribution. In accordance with Main Streets valuation
policy, accrued interest and dividend income is evaluated
periodically for collectibility. When a loan or debt security
becomes 90 days or more past due, and if Main Street
otherwise does not expect the debtor to be able to service all
of its debt or other obligations, Main Street will generally
place the loan or debt security on non-accrual status and cease
recognizing interest income on that loan or debt security until
the borrower has demonstrated the ability and intent to pay
contractual amounts due. If a loan or debt securitys
status significantly improves regarding ability to service the
debt or other obligations, or if a loan or debt security is
fully impaired or written off, it will be removed from
non-accrual status.
While not significant to its total portfolio, Main Street holds
debt instruments in its portfolio that contain
payment-in-kind
(PIK) interest provisions. The PIK interest,
computed at the contractual rate specified in each debt
agreement, is added to the principal balance of the debt and is
recorded as interest income. Thus, the actual collection of this
interest may be deferred until the time of debt principal
repayment.
For each of the two years ended December 31, 2008, and
2007, Main Street had one investment on non-accrual status
comprising approximately 0.5% and 3.1%, respectively, of the
total portfolio investments at fair value for each of the two
years then ended (excluding Main Streets investment in the
Investment Manager).
|
|
6.
|
Deferred
Financing Costs
|
Deferred financing costs include SBIC debenture commitment fees
and SBIC debenture leverage fees which have been capitalized and
which are amortized into interest expense over the term of the
debenture agreement (10 years).
Deferred financing costs also include costs related to a
two-year treasury line of credit and a three-year investment
credit facility. These costs have been capitalized and are
amortized into interest expense over their respective terms.
|
|
7.
|
Fee
Income Structuring and Advisory Services
|
Main Street may periodically provide services, including
structuring and advisory services, to its portfolio companies.
For services that are separately identifiable and evidence
exists to substantiate fair value, income is recognized as
earned, which is generally when the investment or other
applicable transaction closes. Fees received in connection with
debt financing transactions for services that do not meet these
criteria are treated as debt origination fees and are accreted
into interest income over the life of the financing.
|
|
8.
|
Unearned
Income Debt Origination Fees and Original Issue
Discount
|
Main Street capitalizes upfront debt origination fees received
in connection with financings and reflects such fees as unearned
income netted against investments. Main Street will also
capitalize and offset direct loan origination costs against the
origination fees received. The unearned income from the fees,
net of debt origination costs, is accreted into interest income
based on the effective interest method over the life of the
financing.
In connection with its debt investments, Main Street sometimes
receives nominal cost warrants (nominal cost equity)
that are valued as part of the negotiation process with the
particular portfolio company. When Main Street receives nominal
cost equity, Main Street allocates its cost basis in its
investment between its debt securities and its nominal cost
equity at the time of origination. Any resulting discount from
recording the
F-20
MAIN
STREET CAPITAL CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
debt is reflected as unearned income, which is netted against
the investment, and accreted into interest income based on the
effective interest method over the life of the debt.
|
|
9.
|
Share-Based
Compensation
|
Main Street accounts for its share-based compensation plans
using the fair value method, as prescribed by
SFAS No. 123R, Share-Based Payment
(SFAS 123R). Accordingly, for restricted
stock awards, Main Street measures the grant date fair value
based upon the market price of its common stock on the date of
the grant and amortizes that fair value as share-based
compensation expense over the requisite service period or
vesting term.
MSCC has elected and intends to qualify for the tax treatment
applicable to regulated investment companies (RIC)
under Subchapter M of the Internal Revenue Code of 1986, as
amended (the Code), and, among other things, intends
to make the required distributions to its stockholders as
specified therein. In order to qualify as a RIC, Main Street is
required to timely distribute to its stockholders at least 90%
of investment company taxable income, as defined by the Code,
each year. Depending on the level of taxable income earned in a
tax year, Main Street may choose to carry forward taxable income
in excess of current year distributions into the next tax year
and pay a 4% excise tax on such income. Any such carryover
taxable income must be distributed through a dividend declared
prior to filing the final tax return related to the year which
generated such taxable income.
MSCCs wholly owned subsidiary, MSEI, is a taxable entity
which holds certain portfolio investments of Main Street. MSEI
is consolidated with Main Street for U.S. GAAP reporting
purposes, and the portfolio investments held by MSEI are
included in Main Streets consolidated financial
statements. The purpose of MSEI is to permit Main Street to hold
equity investments in portfolio companies which are pass
through entities for tax purposes in order to comply with
the source income requirements contained in the RIC
tax requirements. MSEI is not consolidated with Main Street for
income tax purposes and may generate income tax expense as a
result of its ownership of certain portfolio investments. This
income tax expense, if any, is reflected in Main Streets
Consolidated Statement of Operations.
MSEI uses the liability method in accounting for income taxes.
Deferred tax assets and liabilities are recorded for temporary
differences between the tax basis of assets and liabilities and
their reported amounts in the financial statements, using
statutory tax rates in effect for the year in which the
temporary differences are expected to reverse. A valuation
allowance is provided against deferred tax assets when it is
more likely than not that some portion or all of the deferred
tax asset will not be realized.
Prior to the Formation Transactions, Main Street was taxed under
the partnership provisions of the Code. Under these provisions
of the Code, the General Partner and limited partners were
responsible for reporting their share of the partnerships
income or loss on their income tax returns.
Taxable income generally differs from net income for financial
reporting purposes due to temporary and permanent differences in
the recognition of income and expenses. Taxable income generally
excludes net unrealized appreciation or depreciation, as
investment gains or losses are not included in taxable income
until they are realized.
|
|
11.
|
Net
Realized Gains or Losses from Investments and Net Change in
Unrealized Appreciation or Depreciation from
Investments
|
Realized gains or losses are measured by the difference between
the net proceeds from the sale or redemption of an investment
and the cost basis of the investment, without regard to
unrealized appreciation or depreciation previously recognized,
and includes investments written-off during the period net of
recoveries. Net change in unrealized appreciation or
depreciation from investments reflects the net change in the
valuation
F-21
MAIN
STREET CAPITAL CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
of the investment portfolio pursuant to Main Streets
valuation guidelines and the reclassification of any prior
period unrealized appreciation or depreciation on exited
investments.
|
|
12.
|
Concentration
of Credit Risks
|
Main Street places its cash in financial institutions, and at
times, such balances may be in excess of the federally insured
limit.
|
|
13.
|
Fair
Value of Financial Instruments
|
Fair value estimates are made at discrete points in time based
on relevant information. These estimates may be subjective in
nature and involve uncertainties and matters of significant
judgment and, therefore, cannot be determined with precision.
Main Street believes that the carrying amounts of its financial
instruments, consisting of cash and cash equivalents,
receivables, accounts payable and accrued liabilities
approximate the fair values of such items. Idle funds
investments consist primarily of short term investments in
U.S. government agency securities, investments in
high-quality debt investments and diversified bond funds. The
fair value determination for these investments primarily
consists of Level 1 observable inputs. The SBIC debentures
remain a strategic advantage due to their flexible structure,
long-term duration, and low fixed interest rates. As of
December 31, 2008, had Main Street adopted the provisions
of SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities
(SFAS 159) relating to accounting for debt
obligations at their fair value, Main Street estimates the fair
value of its SBIC debentures would be approximately
$41 million, or $14 million less than the face value
of the SBIC debentures.
|
|
14.
|
Initial
Public Offering Costs
|
For the year ended December 31, 2007, Main Street incurred
total costs of $2,337,823 associated with the initial public
offering of Main Street. These costs principally related to
accounting, legal and other professional fees associated with
the companys initial public offering which was completed
in October 2007.
Of the $2,337,823 in total costs incurred related to initial
public offering, $695,250 of such costs were professional fees
related to the IPO which were deducted in determining the Net
Investment Income and Net Increase in Net Assets Resulting from
Operations for the year ended December 31, 2007. The
remaining $1,642,573 in offering costs incurred has been
reflected as a reduction to Additional Paid In Capital.
Basic and diluted per share calculations are computed utilizing
the weighted average number of shares of common stock
outstanding for the period. The diluted weighted average number
of shares of common stock outstanding for 2008 reflects the
dilution attributable to unvested shares of restricted stock
that are part of Main Streets share-based compensation
plans as discussed in Note M. The diluted weighted average
number of shares was calculated using the Treasury Stock method.
The weighted average number of shares of common stock
outstanding for 2007 was calculated as if the Formation
Transactions and the IPO had occurred on January 1, 2007,
consistent with the guidance on exchanges of shares between
entities under common control contained in SFAS 141. This
approach resulted in more relevant and meaningful per share
computations.
For the year ended December 31, 2008, the difference
between the weighted average number of basic and diluted shares
was small enough to result in the same earnings per share
calculation for both basic and diluted earnings per share. As
Main Street had no common stock equivalents outstanding as of
December 31, 2007, diluted earnings per share was the same
as basic earnings per share. For the year ended
December 31, 2006, earnings per share calculations were not
appropriate due to the partnership structure comprising the
combined financial statements of the Fund and the General
Partner nor would calculations be representative of Main Street
prospectively.
F-22
MAIN
STREET CAPITAL CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
16.
|
Recently
Issued Accounting Standards
|
In June 2008, the Financial Accounting Standards Board
(FASB) issued
EITF 03-6-1,
Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities. This FASB
Staff Position (FSP) addresses whether instruments
granted in share-based payment transactions are participating
securities prior to vesting and, therefore, need to be included
in the earnings allocation in computing earnings per share
(EPS). This FSP will be effective for financial
statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those years.
All prior-period EPS data presented will be adjusted
retrospectively (including interim financial statements,
summaries of earnings, and selected financial data) to conform
to the provisions of this FSP. Early application is not
permitted. Main Street is currently analyzing the effect, if
any, this statement may have on its consolidated results of
operations.
In October 2008, the FASB issued Staff Position
No. 157-3,
Determining the Fair Value of a Financial Asset When the
Market for That Asset is Not Active
(FSP 157-3).
FSP 157-3
provides an illustrative example of how to determine the fair
value of a financial asset in an inactive market. The FSP does
not change the fair value measurement principles set forth in
SFAS 157. Since adopting SFAS 157 in January 2008,
Main Streets practices for determining the fair value of
its investment portfolio have been, and continue to be,
consistent with the guidance provided in the example in
FSP 157-3.
Therefore, Main Streets adoption of
FSP 157-3
did not affect its practices for determining the fair value of
its investment portfolio and does not have a material effect on
its financial position or results of operations.
|
|
NOTE C
|
FAIR
VALUE HIERARCHY FOR PORTFOLIO AND IDLE FUNDS
INVESTMENTS
|
In connection with valuing portfolio and idle funds investments,
Main Street adopted the provisions of SFAS 157 in the first
quarter of 2008. SFAS 157 defines fair value, establishes a
framework for measuring fair value, establishes a fair value
hierarchy based on the quality of inputs used to measure fair
value, and enhances disclosure requirements for fair value
measurements. Main Street accounts for its portfolio investments
at fair value.
Fair
Value Hierarchy
In accordance with SFAS 157, Main Street has categorized
its portfolio and idle funds investments, based on the priority
of the inputs to the valuation technique, into a three-level
fair value hierarchy. The fair value hierarchy gives the highest
priority to quoted prices in active markets for identical
investments (Level 1) and the lowest priority to
unobservable inputs (Level 3).
Portfolio and idle funds investments recorded on Main
Streets balance sheet are categorized based on the inputs
to the valuation techniques as follows:
Level 1 Investments whose values are
based on unadjusted quoted prices for identical assets in an
active market that Main Street has the ability to access
(examples include investments in active exchange-traded equity
securities and investments in most U.S. government and
agency securities).
Level 2 Investments whose values are
based on quoted prices in markets that are not active or model
inputs that are observable either directly or indirectly for
substantially the full term of the investment. Level 2
inputs include the following:
|
|
|
|
|
Quoted prices for similar assets in active markets (for example,
investments in restricted stock);
|
|
|
|
Quoted prices for identical or similar assets in non-active
markets (for example, investments in thinly traded public
companies);
|
F-23
MAIN
STREET CAPITAL CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
Pricing models whose inputs are observable for substantially the
full term of the investment (for example, market interest rate
indices); and
|
|
|
|
Pricing models whose inputs are derived principally from, or
corroborated by, observable market data through correlation or
other means for substantially the full term of the investment.
|
Level 3 Investments whose values are
based on prices or valuation techniques that require inputs that
are both unobservable and significant to the overall fair value
measurement. These inputs reflect managements own
assumptions about the assumptions a market participant would use
in pricing the investment (for example, investments in illiquid
securities issued by private companies).
As required by SFAS 157, when the inputs used to measure
fair value fall within different levels of the hierarchy, the
level within which the fair value measurement is categorized is
based on the lowest level input that is significant to the fair
value measurement in its entirety. For example, a Level 3
fair value measurement may include inputs that are observable
(Levels 1 and 2) and unobservable (Level 3).
Therefore, gains and losses for such investments categorized
within the Level 3 table below may include changes in fair
value that are attributable to both observable inputs
(Levels 1 and 2) and unobservable inputs
(Level 3).
Main Street conducts reviews of fair value hierarchy
classifications on a quarterly basis. Changes in the
observability of valuation inputs may result in a
reclassification for certain investments. As of
December 31, 2008, all of Main Streets idle funds
investments consisted primarily of investments in high-quality
debt investments and diversified bond funds. The fair value
determination for these investments primarily consisted of
observable inputs. As a result, all of Main Streets idle
funds investments were categorized as Level 1 with a fair
value of $4,389,795.
As of December 31, 2008, all of Main Streets
portfolio investments consisted of illiquid securities issued by
private companies. The fair value determination for these
investments primarily consisted of unobservable inputs. As a
result, all of Main Streets portfolio investments were
categorized as Level 3. The fair value determination of
each portfolio investment required one or more of the following
unobservable inputs:
|
|
|
|
|
Financial information obtained from each portfolio company,
including unaudited statements of operations and balance sheets
for the most recent period available as compared to budgeted
numbers;
|
|
|
|
Current and projected financial condition of the portfolio
company;
|
|
|
|
Current and projected ability of the portfolio company to
service its debt obligations;
|
|
|
|
Type and amount of collateral, if any, underlying the investment;
|
|
|
|
Current financial ratios (e.g., fixed charge coverage ratio,
interest coverage ratio, net debt/EBITDA ratio) applicable to
the investment;
|
|
|
|
Current liquidity of the investment and related financial ratios
(e.g., current ratio and quick ratio);
|
|
|
|
Pending debt or capital restructuring of the portfolio company;
|
|
|
|
Projected operating results of the portfolio company;
|
|
|
|
Current information regarding any offers to purchase the
investment;
|
|
|
|
Current ability of the portfolio company to raise any additional
financing as needed;
|
|
|
|
Changes in the economic environment which may have a material
impact on the operating results of the portfolio company;
|
|
|
|
Internal occurrences that may have an impact (both positive and
negative) on the operating performance of the portfolio company;
|
F-24
MAIN
STREET CAPITAL CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
Qualitative assessment of key management;
|
|
|
|
Contractual rights, obligations or restrictions associated with
the investment; and
|
|
|
|
Other factors deemed relevant.
|
The following table provides a summary of changes in fair value
of Main Streets Level 3 investments for the year
ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemptions/
|
|
|
|
|
|
Net
|
|
|
Net
|
|
|
|
|
|
|
December 31,
|
|
|
Accretion of
|
|
|
Repayments/
|
|
|
|
|
|
Changes from
|
|
|
Unrealized
|
|
|
December 31,
|
|
|
|
2007
|
|
|
Unearned
|
|
|
Realized
|
|
|
New
|
|
|
Unrealized
|
|
|
Appreciation
|
|
|
2008
|
|
Type of Investment
|
|
Fair Value
|
|
|
Income
|
|
|
Losses
|
|
|
Investments
|
|
|
to Realized
|
|
|
(Depreciation)
|
|
|
Fair Value
|
|
|
Debt
|
|
$
|
64,581,986
|
|
|
$
|
1,062,452
|
|
|
$
|
(23,595,109
|
)
|
|
$
|
40,586,637
|
|
|
$
|
4,568,891
|
|
|
$
|
(5,453,814
|
)
|
|
$
|
81,751,043
|
|
Equity
|
|
|
16,361,308
|
|
|
|
|
|
|
|
(590,041
|
)
|
|
|
5,995,743
|
|
|
|
(2,717,500
|
)
|
|
|
3,685,636
|
|
|
|
22,735,146
|
|
Equity warrants
|
|
|
7,082,120
|
|
|
|
|
|
|
|
1,069,046
|
|
|
|
959,856
|
|
|
|
(3,636,654
|
)
|
|
|
370,632
|
|
|
|
5,845,000
|
|
Investment Manager
|
|
|
17,625,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(949,374
|
)
|
|
|
16,675,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
105,650,414
|
|
|
$
|
1,062,452
|
|
|
$
|
(23,116,104
|
)
|
|
$
|
47,542,236
|
|
|
$
|
(1,785,263
|
)
|
|
$
|
(2,346,920
|
)
|
|
$
|
127,006,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio
Investments
Main Streets portfolio investments principally consist of
secured debt, equity warrants and direct equity investments in
privately held companies. The debt investments are secured by
either a first or second lien on the assets of the portfolio
company, generally bear interest at fixed rates, and generally
mature between five and seven years from original investment.
Main Street also receives nominally priced equity warrants and
makes direct equity investments, usually in connection with a
debt investment in a portfolio company.
As discussed further in Note D, the Investment Manager is a
wholly owned subsidiary of MSCC. However, the Investment Manager
is accounted for as a portfolio investment of Main Street, since
it is not an investment company and since it conducts a
significant portion of its investment management activities for
entities other than MSCC or one of its subsidiaries. To allow
for more relevant disclosure of Main Streets
core investment portfolio, Main Streets
investment in the Investment Manager has been excluded from the
tables and amounts set forth in this Note C.
Investment income, consisting of interest, dividends and fees,
can fluctuate dramatically. Revenue recognition in any given
year could also be highly concentrated among several portfolio
companies. For the year ended December 31, 2008, Main
Street recorded investment income from one portfolio company in
excess of 10% of total investment income. The investment income
from that portfolio company represented approximately 21% of the
total investment income for the period, principally related to
high levels of dividend income and transaction and structuring
fees on the investment in such company. For the year ended
December 31, 2007, Main Street did not record investment
income from any portfolio company in excess of 10% of total
investment income.
As of December 31, 2008, Main Street had debt and equity
investments in 31 core portfolio companies with an aggregate
fair value of $110,331,189 and a weighted average effective
yield on its debt investments of 14.0%. Approximately 84% of
Main Streets total core portfolio investments at cost were
in the form of debt investments and 91% of such debt investments
at cost were secured by first priority liens on the assets of
Main Streets portfolio companies as of December 31,
2008. At December 31, 2008, Main Street had equity
ownership in approximately 94% of its core portfolio companies
and the average fully diluted equity ownership in those
portfolio companies was approximately 25%. As of
December 31, 2007, Main Street had debt and equity
investments in 27 core portfolio companies with an aggregate
fair value of $88,025,414 and a weighted average effective yield
on its debt investments of 14.3%. The weighted average yields
were computed using the effective interest rates for all debt
investments at December 31, 2008 and 2007, including
F-25
MAIN
STREET CAPITAL CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
amortization of deferred debt origination fees and accretion of
original issue discount but excluding any debt investments on
non-accrual status.
Summaries of the composition of Main Streets core
investment portfolio at cost and fair value as a percentage of
total portfolio investments are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
Cost:
|
|
2008
|
|
|
2007
|
|
|
First lien debt
|
|
|
76.2
|
%
|
|
|
81.5
|
%
|
Equity
|
|
|
11.0
|
%
|
|
|
10.7
|
%
|
Second lien debt
|
|
|
7.4
|
%
|
|
|
6.1
|
%
|
Equity warrants
|
|
|
5.4
|
%
|
|
|
1.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
Fair Value:
|
|
2008
|
|
|
2007
|
|
|
First lien debt
|
|
|
67.0
|
%
|
|
|
70.1
|
%
|
Equity
|
|
|
15.7
|
%
|
|
|
18.6
|
%
|
Equity warrants
|
|
|
10.2
|
%
|
|
|
8.0
|
%
|
Second lien debt
|
|
|
7.1
|
%
|
|
|
3.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
The following table shows the core investment portfolio
composition by geographic region of the United States at cost
and fair value as a percentage of total portfolio investments.
The geographic composition is determined by the location of the
corporate headquarters of the portfolio company.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
Cost:
|
|
2008
|
|
|
2007
|
|
|
Southwest
|
|
|
50.2
|
%
|
|
|
31.9
|
%
|
West
|
|
|
36.3
|
%
|
|
|
37.1
|
%
|
Southeast
|
|
|
5.1
|
%
|
|
|
11.4
|
%
|
Midwest
|
|
|
4.7
|
%
|
|
|
5.8
|
%
|
Northeast
|
|
|
3.7
|
%
|
|
|
13.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
Fair Value:
|
|
2008
|
|
|
2007
|
|
|
Southwest
|
|
|
56.0
|
%
|
|
|
41.2
|
%
|
West
|
|
|
31.1
|
%
|
|
|
32.9
|
%
|
Midwest
|
|
|
5.1
|
%
|
|
|
6.5
|
%
|
Southeast
|
|
|
4.1
|
%
|
|
|
10.3
|
%
|
Northeast
|
|
|
3.7
|
%
|
|
|
9.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
F-26
MAIN
STREET CAPITAL CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Set forth below are tables showing the composition of Main
Streets core investment portfolio by industry at cost and
fair value as of December 31, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
Cost:
|
|
2008
|
|
|
2007
|
|
|
Industrial equipment
|
|
|
12.0
|
%
|
|
|
6.6
|
%
|
Precast concrete manufacturing
|
|
|
11.3
|
%
|
|
|
|
|
Custom wood products
|
|
|
9.3
|
%
|
|
|
8.4
|
%
|
Agricultural services
|
|
|
8.3
|
%
|
|
|
11.6
|
%
|
Electronics manufacturing
|
|
|
7.6
|
%
|
|
|
9.5
|
%
|
Transportation/Logistics
|
|
|
6.6
|
%
|
|
|
6.7
|
%
|
Retail
|
|
|
6.5
|
%
|
|
|
3.3
|
%
|
Restaurant
|
|
|
6.1
|
%
|
|
|
3.4
|
%
|
Health care products
|
|
|
5.8
|
%
|
|
|
4.2
|
%
|
Mining and minerals
|
|
|
4.8
|
%
|
|
|
9.1
|
%
|
Manufacturing
|
|
|
4.7
|
%
|
|
|
12.0
|
%
|
Health care services
|
|
|
4.2
|
%
|
|
|
5.9
|
%
|
Professional services
|
|
|
4.1
|
%
|
|
|
3.3
|
%
|
Metal fabrication
|
|
|
3.4
|
%
|
|
|
4.6
|
%
|
Equipment rental
|
|
|
2.1
|
%
|
|
|
2.6
|
%
|
Infrastructure products
|
|
|
1.7
|
%
|
|
|
2.4
|
%
|
Information services
|
|
|
0.9
|
%
|
|
|
1.2
|
%
|
Industrial services
|
|
|
0.5
|
%
|
|
|
0.4
|
%
|
Distribution
|
|
|
0.1
|
%
|
|
|
2.2
|
%
|
Consumer products
|
|
|
|
|
|
|
2.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
Fair Value:
|
|
2008
|
|
|
2007
|
|
|
Precast concrete manufacturing
|
|
|
13.7
|
%
|
|
|
|
|
Industrial equipment
|
|
|
10.2
|
%
|
|
|
6.0
|
%
|
Agricultural services
|
|
|
8.1
|
%
|
|
|
10.5
|
%
|
Electronics manufacturing
|
|
|
7.7
|
%
|
|
|
9.6
|
%
|
Retail
|
|
|
7.0
|
%
|
|
|
3.4
|
%
|
Custom wood products
|
|
|
6.8
|
%
|
|
|
7.5
|
%
|
Restaurant
|
|
|
6.7
|
%
|
|
|
4.5
|
%
|
Transportation/Logistics
|
|
|
6.5
|
%
|
|
|
6.6
|
%
|
Health care services
|
|
|
6.1
|
%
|
|
|
6.0
|
%
|
Health care products
|
|
|
5.8
|
%
|
|
|
4.1
|
%
|
Professional services
|
|
|
5.4
|
%
|
|
|
4.1
|
%
|
Manufacturing
|
|
|
5.1
|
%
|
|
|
9.5
|
%
|
Metal fabrication
|
|
|
4.3
|
%
|
|
|
4.2
|
%
|
Industrial services
|
|
|
2.8
|
%
|
|
|
2.9
|
%
|
Equipment rental
|
|
|
2.0
|
%
|
|
|
2.4
|
%
|
Information services
|
|
|
0.9
|
%
|
|
|
1.2
|
%
|
Infrastructure products
|
|
|
0.5
|
%
|
|
|
2.2
|
%
|
Distribution
|
|
|
0.4
|
%
|
|
|
2.4
|
%
|
Mining and minerals
|
|
|
|
|
|
|
12.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
F-27
MAIN
STREET CAPITAL CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Main Streets core portfolio investments are generally in
lower middle-market companies conducting business in a variety
of industries. At December 31, 2008, Main Street had one
investment that was greater than 10% of its total core
investment portfolio at fair value. That investment represented
approximately 13.8% of the portfolio at fair value. At
December 31, 2007, Main Street had one investment that was
greater than 10% of its total core investment portfolio at fair
value. That investment represented approximately 10.5% of the
core investment portfolio at fair value.
|
|
NOTE D
|
WHOLLY
OWNED INVESTMENT MANAGER
|
As part of the Formation Transactions, the Investment Manager
became a wholly owned subsidiary of MSCC. However, the
Investment Manager is accounted for as a portfolio investment of
Main Street, since the Investment Manager is not an investment
company and since it conducts a significant portion of its
investment management activities for Main Street Capital II, LP
(MSC II), a separate SBIC fund, which is not part of
MSCC or one of its subsidiaries. The Investment Manager receives
recurring investment management fees from MSC II pursuant to a
separate investment advisory agreement, paid quarterly, which
currently total $3.3 million per year. The portfolio
investment in the Investment Manager is accounted for using fair
value accounting, with the fair value determined by Main Street
and approved, in good faith, by Main Streets Board of
Directors, based on the same valuation methodologies applied to
determine the original $18 million valuation. The original
valuation for the Investment Manager was based on the estimated
present value of the net cash flows received for investment
management services provided to MSC II, over the estimated
dollar averaged life of the related management contract, and was
also based on comparable public market transactions. The net
cash flows utilized in the valuation of the Investment Manager
exclude any revenues and expenses from all related parties
(including MSCC) but include the management fees from MSC II and
an estimated allocation of costs related to providing services
to MSC II. Any change in fair value of the Investment Manager
investment is recognized on Main Streets statement of
operations as Unrealized appreciation (depreciation) in
Investment in affiliated Investment Manager, with a
corresponding increase (in the case of appreciation) or decrease
(in the case of depreciation) to Investment in affiliated
Investment Manager on Main Streets balance sheet.
Main Street believes that the valuation for the Investment
Manager will decrease over the life of the management contract
with MSC II, absent obtaining additional recurring cash flows
from performing investment management activities for other
external investment entities.
The Investment Manager has elected, for tax purposes, to be
treated as a taxable entity and is taxed at normal corporate tax
rates based on its taxable income. The taxable income of the
Investment Manager may differ from its book income due to
temporary book and tax timing differences, as well as permanent
differences. The Investment Manager provides for any current
taxes payable and deferred tax items in its separate financial
statements.
MSCC has a support services agreement with the Investment
Manager that is structured to provide reimbursement to the
Investment Manager for any personnel, administrative and other
costs it incurs in conducting its operational and investment
management activities in excess of the investment management
fees received from MSC II. As a wholly owned subsidiary of MSCC,
the Investment Manager manages the
day-to-day
operational and investment activities of MSCC and its
subsidiaries, as well as the investment activities of MSC II.
The Investment Manager pays personnel and other administrative
expenses, except those specifically required to be borne by
MSCC, which principally include direct costs that are specific
to MSCCs status as a publicly traded entity. The expenses
paid by the Investment Manager include the cost of salaries and
related benefits, rent, equipment and other administrative costs
required for
day-to-day
operations.
Pursuant to the support services agreement with MSCC, the
Investment Manager is reimbursed for its excess expenses
associated with providing investment management and other
services to MSCC and its subsidiaries, as well as MSC II. Each
quarter, as part of the support services agreement, MSCC makes
payments to cover all expenses incurred by the Investment
Manager, less the recurring management fees that
F-28
MAIN
STREET CAPITAL CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the Investment Manager receives from MSC II pursuant to a
long-term investment advisory services agreement. For the year
ended December 31, 2008, the expenses reimbursed by MSCC to
the Investment Manager were approximately $1.0 million. For
the period from October 2, 2007 through December 31,
2007, no expenses were reimbursed by MSCC to the Investment
Manager.
In its separate stand alone financial statements as presented
below, the Investment Manager recognized an $18 million
intangible asset related to the investment advisory agreement
with MSC II and consistent with Staff Accounting
Bulletin No. 54, Application of
Pushdown Basis of Accounting in Financial Statements
of Subsidiaries Acquired by Purchase
(SAB 54). Under SAB 54, push-down
accounting is required in purchase transactions that
result in an entity becoming substantially wholly owned.
In this case, MSCC acquired 100% of the equity interests in the
Investment Manager. Because the $18 million value
attributed to MSCCs investment in the Investment Manager
was derived from the long-term, recurring management fees under
the investment advisory agreement with MSC II, the same
methodology used to determine the $18 million valuation of
the Investment Manager was utilized to establish the push-down
accounting basis for the intangible asset. The intangible asset
is being amortized over the estimated economic life of the
investment advisory agreement with MSC II. As of
December 31, 2008, the Investment Manager recognized
$1,174,207 in cumulative amortization expense associated with
the intangible asset. Amortization expense is not included in
the expenses reimbursed by MSCC to the Investment Manager based
upon the support services agreement between the two entities
since it is non-cash in nature.
Summarized financial information from the separate financial
statements of the Investment Manager is as follows:
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
ASSETS
|
Cash
|
|
$
|
20,772
|
|
|
$
|
86,439
|
|
Accounts receivable
|
|
|
17,990
|
|
|
|
14,142
|
|
Accounts receivable MSCC
|
|
|
302,633
|
|
|
|
|
|
Intangible asset (net of accumulated amortization of $1,174,207
as of December 31, 2008)
|
|
|
16,825,793
|
|
|
|
18,000,000
|
|
Deposits and other
|
|
|
103,392
|
|
|
|
29,094
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
17,270,580
|
|
|
$
|
18,129,675
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
Accounts payable MSCC
|
|
$
|
|
|
|
$
|
207,898
|
|
Accrued liabilities
|
|
|
589,360
|
|
|
|
66,349
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
589,360
|
|
|
|
274,247
|
|
Equity
|
|
|
16,681,220
|
|
|
|
17,855,428
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
17,270,580
|
|
|
$
|
18,129,675
|
|
|
|
|
|
|
|
|
|
|
F-29
MAIN
STREET CAPITAL CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Period
|
|
|
|
|
|
|
October 2,
|
|
|
|
|
|
|
2007
|
|
|
|
Year Ended
|
|
|
through
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
Management fee income from Main Street Capital II
|
|
$
|
3,325,200
|
|
|
$
|
831,300
|
|
Other management advisory fees
|
|
|
47,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income
|
|
|
3,372,950
|
|
|
|
831,300
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
Salaries, benefits and other personnel costs
|
|
|
(3,483,336
|
)
|
|
|
(612,377
|
)
|
Occupancy expense
|
|
|
(184,285
|
)
|
|
|
(45,343
|
)
|
Professional expenses
|
|
|
(81,208
|
)
|
|
|
(57,703
|
)
|
Amortization expense intangible asset
|
|
|
(1,174,207
|
)
|
|
|
|
|
Other
|
|
|
(630,956
|
)
|
|
|
(115,877
|
)
|
Expense reimbursement from MSCC
|
|
|
1,006,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net expenses
|
|
|
(4,547,157
|
)
|
|
|
(831,300
|
)
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1,174,207
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Prior to the Formation Transactions and the IPO, the Fund had a
separate investment advisory agreement with the Investment
Manager which provided for recurring management fees to be paid
from the Fund to the Investment Manager. As part of this
agreement, the Investment Manager was responsible for managing
the
day-to-day
operational and investment activities of the Fund. Subsequent to
the Formation Transactions and IPO, the Fund has not paid any
management fees to the Investment Manager since both entities
are now wholly owned by MSCC. Management fees paid by the Fund
to the Investment Manager, prior to the Formation Transactions
and IPO, for the years ended December 31, 2007 and 2006
were $1,499,937 and $1,942,032, respectively.
|
|
NOTE E
|
DEFERRED
FINANCING COSTS
|
Deferred financing costs balances as of December 31, 2008
and 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
SBIC debenture commitment fees
|
|
$
|
550,000
|
|
|
$
|
550,000
|
|
SBIC debenture leverage fees
|
|
|
1,367,575
|
|
|
|
1,367,575
|
|
Other
|
|
|
673,700
|
|
|
|
282,512
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
2,591,275
|
|
|
|
2,200,087
|
|
Accumulated amortization
|
|
|
(956,037
|
)
|
|
|
(529,952
|
)
|
|
|
|
|
|
|
|
|
|
Ending deferred financing costs balance
|
|
$
|
1,635,238
|
|
|
$
|
1,670,135
|
|
|
|
|
|
|
|
|
|
|
F-30
MAIN
STREET CAPITAL CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Estimated aggregate amortization expense for each of the five
years succeeding December 31, 2008 and thereafter is as
follows:
|
|
|
|
|
|
|
Estimated
|
|
Years Ending December 31,
|
|
Amortization
|
|
|
2009
|
|
$
|
402,091
|
|
2010
|
|
$
|
316,689
|
|
2011
|
|
$
|
295,867
|
|
2012
|
|
$
|
191,758
|
|
2013
|
|
$
|
182,424
|
|
2014 and thereafter
|
|
$
|
246,409
|
|
SBIC debentures payable at both December 31, 2008 and 2007
was $55,000,000. SBIC debentures provide for interest to be paid
semi-annually with principal due at the applicable
10-year
maturity date. Main Street paid interest on the SBIC debentures
of $3,188,015 and $2,852,002 for the years ended 2008 and 2007,
respectively. The weighted average interest rate as of
December 31, 2008 and 2007 was 5.78%. The first principal
maturity due under the existing SBIC debentures is in 2013. Main
Street is subject to regular compliance examinations by the SBA.
There have been no historical findings resulting from these
examinations.
SBIC Debentures payable at December 31, 2008 and 2007
consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
|
|
|
|
|
|
|
Maturity
|
|
|
Interest
|
|
|
|
|
Pooling Date
|
|
Date
|
|
|
Rate
|
|
|
Amount
|
|
|
9/24/2003
|
|
|
9/1/2013
|
|
|
|
5.76
|
%
|
|
$
|
4,000,000
|
|
3/24/2004
|
|
|
3/1/2014
|
|
|
|
5.01
|
%
|
|
|
3,000,000
|
|
9/22/2004
|
|
|
9/1/2014
|
|
|
|
5.57
|
%
|
|
|
9,000,000
|
|
9/22/2004
|
|
|
9/1/2014
|
|
|
|
5.54
|
%
|
|
|
6,000,000
|
|
3/23/2005
|
|
|
3/1/2015
|
|
|
|
5.93
|
%
|
|
|
2,000,000
|
|
3/23/2005
|
|
|
3/1/2015
|
|
|
|
5.89
|
%
|
|
|
2,000,000
|
|
9/28/2005
|
|
|
9/1/2015
|
|
|
|
5.80
|
%
|
|
|
19,100,000
|
|
3/28/2007
|
|
|
3/1/2017
|
|
|
|
6.23
|
%
|
|
|
3,900,000
|
|
3/28/2007
|
|
|
3/1/2017
|
|
|
|
6.26
|
%
|
|
|
1,000,000
|
|
3/28/2007
|
|
|
3/1/2017
|
|
|
|
6.32
|
%
|
|
|
5,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of December 31, 2008 and 2007
|
|
|
|
|
|
|
|
|
|
$
|
55,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE G
|
INVESTMENT AND TREASURY CREDIT FACILITIES
|
On October 24, 2008, Main Street entered into a
$30 million, three-year investment credit facility (the
Investment Facility) with Branch Banking and
Trust Company (BB&T) and Compass Bank, as
lenders, and BB&T, as administrative agent for the lenders.
The purpose of the Investment Facility is to provide additional
liquidity in support of future investment and operational
activities. The Investment Facility allows for an increase in
the total size of the facility up to $75 million, subject
to certain conditions, and has a maturity date of
October 24, 2011. Borrowings under the Investment Facility
bear interest, subject to Main Streets election, on a per
annum basis equal to (i) the applicable LIBOR rate plus
2.75% or (ii) the applicable base rate plus 0.75%. Main
Street will pay unused commitment fees of 0.375% per annum on
the average
F-31
MAIN
STREET CAPITAL CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
unused lender commitments under the Investment Facility. The
Investment Facility is secured by certain assets of MSCC, MSEI
and the Investment Manager. The Investment Facility contains
certain affirmative and negative covenants, including but not
limited to: (i) maintaining a minimum liquidity of not less
than 10% of the aggregate principal amount outstanding,
(ii) maintaining an interest coverage ratio of at least
2.00 to 1.00, and (iii) maintaining a minimum tangible net
worth. At December 31, 2008, Main Street had no borrowings
outstanding under the Investment Facility, and Main Street was
in compliance with all covenants of the Investment Facility.
On December 31, 2007, Main Street entered into a
treasury-based credit facility (the Treasury
Facility) among Main Street, Wachovia Bank, National
Association and BB&T, as administrative agent for the
lenders. The purpose of the Treasury Facility is to provide
flexibility in the sizing of portfolio investments and to
facilitate the growth of Main Streets investment
portfolio. Under the Treasury Facility, the lenders had agreed
to extend revolving loans to Main Street in an amount not to
exceed $100 million; however, due to the maturation of Main
Streets investment portfolio and the additional
flexibility provided by the Investment Facility, Main Street
unilaterally reduced the Treasury Facility from
$100 million to $50 million during October 2008. The
reduction in the size of the Treasury Facility will reduce the
amount of unused commitment fees paid by Main Street. The
Treasury Facility has a two-year term and bears interest, at
Main Streets option, either (i) at the LIBOR rate or
(ii) at a published prime rate of interest, plus 0.25% in
each case. The applicable interest rates under the Treasury
Facility would be increased by 0.15% if usage under the Treasury
Facility is in excess of 50% of the days within a given calendar
quarter. The Treasury Facility requires payment of 0.15% per
annum in unused commitment fees based on average daily unused
balances under the facility. The Treasury Facility is secured by
certain securities accounts maintained for Main Street by
BB&T and is also guaranteed by Main Streets
wholly-owned Investment Manager. The Treasury Facility contains
certain affirmative and negative covenants, including but not
limited to: (i) maintaining a cash collateral coverage
ratio of at least 1.01 to 1.0, (ii) maintaining an interest
coverage ratio of at least 2.0 to 1.0, and
(iii) maintaining a minimum tangible net worth. At
December 31, 2008, Main Street had no borrowings
outstanding under the Treasury Facility, and Main Street was in
compliance with all covenants of the Treasury Facility.
F-32
MAIN
STREET CAPITAL CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE H
|
FINANCIAL HIGHLIGHTS
|
The financial highlights are prepared in accordance with the
guidance on exchanges of shares between entities under common
control contained in SFAS 141, with ratios and per share
amounts calculated as if the Formation Transactions and the IPO
had occurred as of January 1, 2007.
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
Per Share Data:
|
|
2008
|
|
|
2007
|
|
|
Net asset value at beginning of period
|
|
$
|
12.85
|
|
|
$
|
4.90
|
|
Net investment income(1)
|
|
|
1.15
|
|
|
|
0.76
|
|
Net realized gains(1)(2)
|
|
|
0.16
|
|
|
|
0.55
|
|
Net change in unrealized depreciation on investments(1)(2)
|
|
|
(0.44
|
)
|
|
|
(0.63
|
)
|
Income tax benefit (provision)(1)
|
|
|
0.35
|
|
|
|
(0.38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting from operations(1)
|
|
|
1.22
|
|
|
|
0.30
|
|
Net increase in net assets associated with the Formation
Transactions and the Offering
|
|
|
|
|
|
|
8.66
|
|
Net decrease in net assets from dividends paid to stockholders
|
|
|
(1.43
|
)
|
|
|
(0.33
|
)
|
Net decrease in net assets from dividends declared as of
December 31, 2008 for the January 15,
2009 monthly dividend
|
|
|
(0.13
|
)
|
|
|
|
|
Net decrease in net assets from distributions to partners, net
of contributions(3)
|
|
|
|
|
|
|
(0.72
|
)
|
Increase due to shares issued pursuant to the dividend
reinvestment plan
|
|
|
0.02
|
|
|
|
0.22
|
|
Increase due to share-based compensation
|
|
|
0.06
|
|
|
|
|
|
Accretive effect of share repurchase program (repurchases below
net asset value)
|
|
|
0.01
|
|
|
|
|
|
Other(4)
|
|
|
(0.40
|
)
|
|
|
(0.18
|
)
|
|
|
|
|
|
|
|
|
|
Net asset value at December 31, 2008 and 2007
|
|
$
|
12.20
|
|
|
$
|
12.85
|
|
|
|
|
|
|
|
|
|
|
Market value at December 31, 2008 and 2007
|
|
$
|
9.77
|
|
|
$
|
14.01
|
|
Shares outstanding at December 31, 2008 and 2007
|
|
|
9,206,483
|
|
|
|
8,959,718
|
|
|
|
|
(1) |
|
Based on weighted average number of common shares outstanding
for the period. |
|
(2) |
|
Net realized gains and net change in unrealized appreciation or
depreciation can fluctuate significantly from period to period. |
|
(3) |
|
Net of partner contributions made during the period. |
|
(4) |
|
Represents the impact of the different share amounts used in
calculating per share data as a result of calculating certain
per share data based on the weighted average basic shares
outstanding during the period and certain per share data based
on the shares outstanding as of a period end or transaction date. |
F-33
MAIN
STREET CAPITAL CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006(1)
|
|
|
Net assets at end of period
|
|
$
|
112,356,056
|
|
|
$
|
115,149,208
|
|
|
$
|
43,272,531
|
|
Average net assets
|
|
$
|
114,977,272
|
|
|
$
|
56,882,526
|
|
|
$
|
38,621,188
|
|
Average outstanding debt
|
|
$
|
55,000,000
|
|
|
$
|
53,020,000
|
|
|
$
|
45,100,000
|
|
Ratio of total expenses, excluding interest expense, to average
net assets(2)(4)
|
|
|
2.79
|
%
|
|
|
4.76
|
%
|
|
|
5.54
|
%
|
Ratio of total expenses to average net assets(2)(4)
|
|
|
6.07
|
%
|
|
|
10.47
|
%
|
|
|
12.58
|
%
|
Ratio of net investment income to average net assets(2)(4)
|
|
|
8.97
|
%
|
|
|
11.47
|
%
|
|
|
12.70
|
%
|
Total return based on change in net asset value(3)(5)
|
|
|
9.84
|
%
|
|
|
5.88
|
%
|
|
|
47.56
|
%
|
|
|
|
(1) |
|
The amounts reflected in the financial highlights represent the
combined general partner and limited partner amounts. |
|
|
|
|
|
(2) |
|
The Investment Manager voluntarily waived $48,000 of management
fees for the year ended December 31, 2006. |
|
(3) |
|
Total return based on change in net asset value was calculated
using the sum of ending net asset value plus distributions to
stockholders and/or members and partners during the period less
capital contributions during the period, as divided by the
beginning net asset value. |
|
(4) |
|
The December 31, 2007 ratio includes the impact of
professional costs related to the IPO. These costs were 25.7%
and 11.7% of operating expense and total expenses, respectively,
for that period. |
|
(5) |
|
For the period prior to the Formation Transactions, this ratio
combines the total return for both the managing investors (the
General Partner) and the non-managing investors (limited
partners). |
|
|
NOTE I
|
DIVIDENDS,
DISTRIBUTIONS AND TAXABLE INCOME
|
In September 2008, Main Street announced that it would begin
making dividend payments on a monthly, as opposed to a
quarterly, basis beginning in October 2008. Main Streets
Board of Directors declared monthly dividends of $0.125 per
share for each of October, November and December 2008.
For the year ended December 31, 2008, Main Streets
Board of Directors declared dividends of approximately
$14.1 million or $1.55 per share of common stock, with
$13.0 million or $1.425 per share paid to stockholders
during 2008 and $1.1 million or $0.125 per share accrued
based upon record date as of December 31, 2008 for the
January 2009 monthly dividend. The dividends were comprised
of ordinary income totaling $8.6 million, or $0.95 per
share, and long term capital gain totaling $5.5 million, or
$0.60 per share. During the period from October 2, 2007
(the date of the Formation Transactions) through
December 31, 2007, Main Streets Board of Directors
declared a dividend of $2.9 million, or $0.33 per common
share. The dividend was comprised of ordinary income totaling
$0.9 million, or $0.105 per share, and long term capital
gain totaling $2.0 million, or $0.225 per share. Ordinary
dividend distributions from a RIC do not qualify for the 15%
maximum tax rate on dividend income from domestic corporations
and qualified foreign corporations except to the extent that the
RIC received the income in the form of qualifying dividends from
domestic corporations and qualified foreign corporations.
MSCC has elected to be treated for federal income tax purposes
as a RIC on its 2007 tax return. As a RIC, Main Street generally
will not pay corporate-level federal income taxes on any net
ordinary income or capital gains that Main Street distributes to
its stockholders as dividends. Main Street must distribute at
least 90% of its investment company taxable income to qualify
for pass-through tax treatment and maintain its RIC status. Main
Street has distributed and currently intends to distribute
sufficient dividends to qualify as a RIC.
F-34
MAIN
STREET CAPITAL CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As part of maintaining RIC status, dividends pertaining to a
given fiscal year may be distributed up to 12 months
subsequent to the end of that fiscal year provided such
dividends are declared prior to the filing of Main Streets
federal income tax return. Main Street will generally be
required to pay an excise tax equal to 4% of the amount by which
98% of the companys annual taxable income for a given year
exceeds the distributions for such year. For the years ended
December 31, 2008 and 2007, estimated annual taxable income
exceeded dividend distributions from such taxable income, and
accordingly, Main Street accrued to Income tax provision
(benefit) an excise tax of $112,625 on the 2008 estimated
excess taxable income carried forward into 2009 and $60,000 on
the 2007 estimated excess taxable income carried forward into
2008. For the year ended December 31, 2008, estimated
excess taxable income carried forward into 2009 totaled
$2,799,963 million and was reduced by, for tax purposes,
the monthly dividend paid in January 2009 since it was declared
and accrued prior to December 31, 2008. This tax treatment
resulted in a reduction of the 2008 excise taxes required to be
paid. Excluding the impact for this tax treatment of the January
2009 dividend, Main Street estimates that it generated
undistributed taxable income of $3,952,448 million during
2008 that will be carried forward toward distributions paid in
2009. For the year ended December 31, 2007, excess taxable
income carried forward into 2008 totaled $1,481,131 million.
Main Streets wholly-owned subsidiary, MSEI, is a taxable
entity which holds certain portfolio investments of Main Street.
MSEI is consolidated with Main Street, and the portfolio
investments held by MSEI are included in Main Streets
consolidated financial statements. The purpose of MSEI is to
permit Main Street to hold portfolio companies which are
pass through entities for tax purposes in order to
comply with the source income requirements contained
in the RIC tax provisions of the Code. MSEI is not consolidated
with Main Street for income tax purposes and may generate income
tax expense or income tax benefit as a result of its ownership
of the portfolio investments. This income tax expense or
benefit, if any, is reflected in Main Streets Consolidated
Statement of Operations. For the year ended December 31,
2008, Main Street recognized an income tax benefit of $3,182,401
primarily related to non-cash deferred taxes on unrealized
depreciation for certain portfolio investments that are owned by
MSEI. Main Street does not anticipate having this level of
income tax benefit in future periods. For the period from
October 2, 2007 (the date of the Formation Transactions)
through December 31, 2007, Main Street recognized a
cumulative income tax expense of $3,262,539 primarily related to
non-cash deferred taxes on unrealized appreciation from
portfolio investments that were contributed to MSEI.
Main Streets provision for income taxes, including MSEI,
was comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Current tax expense (benefit):
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
663,767
|
|
|
$
|
162,274
|
|
State
|
|
|
188,560
|
|
|
|
14,593
|
|
|
|
|
|
|
|
|
|
|
Total current tax expense (benefit)
|
|
|
852,327
|
|
|
|
176,867
|
|
Deferred tax expense (benefit):
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(4,061,969
|
)
|
|
|
2,967,286
|
|
State
|
|
|
(85,384
|
)
|
|
|
58,386
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax expense (benefit)
|
|
|
(4,147,353
|
)
|
|
|
3,025,672
|
|
Excise tax
|
|
|
112,625
|
|
|
|
60,000
|
|
|
|
|
|
|
|
|
|
|
Total income tax provision (benefit)
|
|
$
|
(3,182,401
|
)
|
|
$
|
3,262,539
|
|
|
|
|
|
|
|
|
|
|
F-35
MAIN
STREET CAPITAL CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Listed below is a reconciliation of Net Increase in Net
Assets Resulting From Operations to taxable income and to
total distributions to common stockholders for the years ended
December 31, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Estimated)
|
|
|
|
|
|
Net increase in net assets resulting from operations
|
|
$
|
10,933,939
|
|
|
$
|
2,544,876
|
|
Earnings prior to Formation Transactions
|
|
|
|
|
|
|
(5,819,311
|
)
|
Share-based compensation
|
|
|
511,452
|
|
|
|
|
|
Net change in unrealized depreciation on investments
|
|
|
3,961,092
|
|
|
|
4,597,897
|
|
Income tax provision (benefit)
|
|
|
(3,182,401
|
)
|
|
|
3,262,539
|
|
Pre-tax loss (income) of taxable subsidiary, MSEI, not
consolidated for tax purposes
|
|
|
2,182,580
|
|
|
|
(126,624
|
)
|
Book income and tax income differences, including debt
origination, structuring fees and realized gains
|
|
|
1,033,436
|
|
|
|
(65,426
|
)
|
|
|
|
|
|
|
|
|
|
Taxable income(1)
|
|
|
15,440,098
|
|
|
|
4,393,951
|
|
Taxable income earned in prior year and carried forward for
distribution in current year
|
|
|
1,481,131
|
|
|
|
|
|
Taxable income earned in current year and carried forward for
distribution
|
|
|
(2,799,963
|
)
|
|
|
(1,481,131
|
)
|
|
|
|
|
|
|
|
|
|
Total distributions declared to common stockholders
|
|
$
|
14,121,266
|
|
|
$
|
2,912,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Main Streets taxable income for 2008 is an estimate and
will not be finally determined until the company files its 2008
tax return in September 2009. Therefore, the final taxable
income, and the taxable income earned in 2008 and carried
forward for distribution in 2009, may be different than this
estimate. |
The net deferred tax asset at December 31, 2008 was
$1,121,681 and primarily related to timing differences from
recognition of unrealized losses from debt and equity
investments in portfolio companies as well as timing differences
from taxable income from equity investments in portfolio
companies which are flow through entities. The net deferred tax
liability at December 31, 2007 was $3,025,672 and primarily
related to timing differences from recognition of unrealized
gains from equity investments in portfolio companies. Management
believes that the realization of the deferred tax asset is more
likely than not based on expectations as to future taxable
income and scheduled reversals of temporary differences.
Accordingly, Main Street did not record a valuation allowance at
December 31, 2008.
F-36
MAIN
STREET CAPITAL CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Prior to the Formation Transactions, Main Street was taxed under
the partnership provisions of the Code. Under these provisions
of the Code, the General Partner and limited partners are
responsible for reporting their share of the partnerships
income or loss on their income tax returns. Taxable income
generally differs from net income for financial reporting
purposes due to temporary and permanent differences in the
recognition of income and expenses, and generally excludes net
unrealized appreciation or depreciation, as gains or losses are
not included in taxable income until they are realized. Listed
below is a reconciliation of Net Increase in Net Assets
Resulting From Operations to taxable income for the year ended
December 31, 2006.
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
Net increase in members equity and partners capital
resulting from operations
|
|
$
|
15,822,997
|
|
Net change in unrealized depreciation from investments
|
|
|
(8,488,514
|
)
|
Accrual basis to cash basis adjustments:
|
|
|
|
|
Deferred debt origination fees included in taxable income
|
|
|
709,980
|
|
Accretion of unearned fee income for book income
|
|
|
(517,649
|
)
|
Net change in interest receivable
|
|
|
(93,480
|
)
|
Net change in interest payable
|
|
|
83,459
|
|
Portfolio company pass through taxable income (loss)
|
|
|
610,866
|
|
Other
|
|
|
(321,295
|
)
|
|
|
|
|
|
Taxable income
|
|
$
|
7,806,364
|
|
|
|
|
|
|
|
|
NOTE J
|
COMMON
STOCK AND SHARE REPURCHASE PROGRAM
|
On November 13, 2008, Main Street announced that its Board
of Directors authorized its officers, in their discretion and
subject to compliance with the 1940 Act and other applicable
law, to purchase on the open market or in privately negotiated
transactions, an amount up to $5 million of the outstanding
shares of Main Streets common stock at prices per share
not to exceed Main Streets last reported net asset value
per share. The share repurchase program is authorized to be in
effect through the earlier of December 31, 2009 or such
time as the approved $5 million repurchase amount has been
fully utilized. Main Street can not assure the extent that it
will conduct future open market purchases. The share repurchase
program does not require Main Street to repurchase any specific
number of shares and may be discontinued at any time. Shares
purchased under the repurchase program will be accounted for as
treasury stock until such time as the shares are cancelled or
reissued. During November and December 2008, Main Street
purchased 34,700 shares in connection with the repurchase
program at a weighted average cost of $9.54 per share.
On October 2, 2007, Main Street initiated the Formation
Transactions and acquired 100% of the equity interests in the
Fund, the General Partner and the Investment Manager in exchange
for 4,525,726 shares.
On October 4, 2007, Main Street completed the IPO. The IPO
consisted of the public offering and sale of
4,300,000 shares of common stock, including the
underwriters exercise of the over-allotment option, at a
price to the public of $15.00 per share, resulting in net
proceeds of approximately $60.2 million, after deducting
underwriters commissions totaling approximately
$4.3 million.
|
|
NOTE K
|
PARTNERS
CAPITAL CONTRIBUTIONS, ALLOCATIONS AND DISTRIBUTIONS
|
Prior to the Formation Transactions, the Fund had received
irrevocable commitments from investors to contribute capital of
$26,665,548, which had been substantially paid in through the
date of the Formation Transactions (October 2, 2007).
F-37
MAIN
STREET CAPITAL CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Fund is a licensed SBIC, and prior to the Formation
Transactions, was able to make distributions of cash
and/or
property only at such times as permitted by the SBIC Act and as
determined under the Partnership Agreement. Under the
Partnership Agreement, the General Partner was entitled to 20%
of the Funds distributions, subject to a
clawback provision that required the General Partner
to return an amount of allocated profits and distributions to
the Fund if, and to the extent that, distributions to the
General Partner over the life of the Fund caused the limited
partners of the Fund to receive cumulative distributions which
were less than their share (approximately 80%) of the cumulative
net profits of the Fund. The Fund made total distributions of
$6,500,000 and $6,174,297 (including a $530,000 return of
capital distribution) from January 1, 2007 through the
date of the Formation Transactions (October 2,
2007) and for the year ended December 31, 2006,
respectively.
|
|
NOTE L
|
DIVIDEND
REINVESTMENT PLAN (DRIP)
|
Main Streets DRIP provides for the reinvestment of
dividends on behalf of its stockholders, unless a stockholder
has elected to receive dividends in cash. As a result, if Main
Street declares a cash dividend, the companys stockholders
who have not opted out of the DRIP by the dividend
record date will have their cash dividend automatically
reinvested into additional shares of MSCC common stock. Main
Street has the option to satisfy the share requirements of the
DRIP through the issuance of shares of common stock or through
open market purchases of common stock by the DRIP plan
administrator. Newly issued shares will be valued based upon the
final closing price of MSCCs common stock on the valuation
date determined by Main Streets Board of Directors. Shares
purchased in the open market to satisfy the DRIP requirements
will be valued based upon the average price of the applicable
shares purchased by the DRIP plan administrator, before any
associated brokerage or other costs.
For the year ended December 31, 2008, $4,918,649 of the
total $12,968,780 in dividends paid to stockholders that were
attributable to 2008 represented DRIP participation, and
382,794 shares of common stock were purchased in the open
market to satisfy the DRIP participation requirements.
Additionally, 15,820 shares valued at $213,729 were issued
to satisfy remaining DRIP obligations. During December 2008,
Main Street funded $400,000 to its dividend reinvestment plan
administrator for the purchase of common stock in the open
market to satisfy the DRIP participation requirements in
connection with the January 2009 monthly dividend. For the
year ended December 31, 2007, $1,903,116 of the total
$2,912,820 in dividends paid to stockholders represented DRIP
participation and 132,992 shares of common stock were
issued to satisfy the DRIP participation requirements. The
shares disclosed above relate only to Main Streets DRIP
and exclude any activity related to broker-managed dividend
reinvestment plans.
|
|
NOTE M
|
SHARE-BASED
COMPENSATION
|
Main Street accounts for its share-based compensation plan using
the fair value method, as prescribed by SFAS 123R.
Accordingly, for restricted stock awards, Main Street measured
the grant date fair value based upon the market price of its
common stock on the date of the grant and will amortize this
fair value into share-based compensation expense over the
requisite service period or vesting term.
On July 1, 2008, Main Streets Board of Directors
approved the issuance of 245,645 shares of restricted stock
to Main Street employees pursuant to the Main Street Capital
Corporation 2008 Equity Incentive Plan. These shares will vest
over a four-year period from the grant date and will be expensed
over a four-year service period starting on the grant date.
On July 1, 2008, a total of 20,000 shares of
restricted stock were issued to Main Streets independent
directors pursuant to the Main Street Capital Corporation 2008
Non-Employee Director Restricted Stock Plan. One-half of those
shares vested immediately on the grant date, and the remaining
half will vest on the day immediately preceding the next annual
meeting at which Main Street stockholders elect directors,
provided that these independent directors have been in
continuous service as members of the Board through such date.
F-38
MAIN
STREET CAPITAL CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As a result, 50% of those shares were expensed during July 2008
with the remaining 50% to be expensed over a one-year service
period starting on the grant date.
For the year ended December 31, 2008, Main Street
recognized total share-based compensation expense of $511,452
related to the restricted stock issued to Main Street employees
and Main Streets independent directors. As of
December 31, 2008, there were no forfeitures of non-vested
restricted shares.
As of December 31, 2008, there was $2,380,167 of total
unrecognized compensation cost related to Main Streets
non-vested restricted shares. This cost is expected to be
recognized over a weighted-average period of approximately
3.25 years.
|
|
NOTE N
|
EARNINGS
PER SHARE
|
The following table summarizes our calculation of basic and
diluted earnings per share for the years ended December 31,
2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Consolidated)
|
|
|
(Consolidated)
|
|
|
(Combined)
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting from operations
|
|
$
|
10,933,939
|
|
|
$
|
2,544,876
|
|
|
$
|
15,822,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average shares outstanding
|
|
|
8,967,383
|
|
|
|
8,587,701
|
|
|
|
N/A
|
|
Dilutive effect of restricted stock on which forfeiture
provisions have not lapsed
|
|
|
3,681
|
|
|
|
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted average shares outstanding
|
|
|
8,971,064
|
|
|
|
8,587,701
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting from operations per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.22
|
|
|
$
|
0.30
|
|
|
|
N/A
|
|
Diluted
|
|
$
|
1.22
|
|
|
$
|
0.30
|
|
|
|
N/A
|
|
We use the treasury stock method to calculate diluted earnings
per share. We include non-vested restricted shares in our
calculation of diluted earnings per share when we believe it is
probable the requisite service period criteria will be met and
the forfeiture provisions have not lapsed.
At December 31, 2008, Main Street had two outstanding
commitments to fund unused revolving loans for up to $900,000.
|
|
NOTE P
|
SUPPLEMENTAL
CASH FLOW DISCLOSURES
|
Listed below are the supplemental cash flow disclosures for the
years ended December 31, 2008, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Interest paid
|
|
$
|
3,306,313
|
|
|
$
|
2,852,002
|
|
|
$
|
2,475,926
|
|
Taxes paid
|
|
$
|
355,053
|
|
|
$
|
|
|
|
$
|
|
|
Non-cash investing and financing activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for Investment in the Investment Manager
|
|
$
|
|
|
|
$
|
18,000,000
|
|
|
$
|
|
|
Issuance of shares for dividend reinvestment plan
|
|
$
|
213,729
|
|
|
$
|
1,903,116
|
|
|
$
|
|
|
F-39
MAIN
STREET CAPITAL CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE Q
|
SELECTED
QUARTERLY DATA (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
Qtr. 1
|
|
|
Qtr. 2
|
|
|
Qtr. 3
|
|
|
Qtr. 4
|
|
|
Total investment income
|
|
$
|
4,027,366
|
|
|
$
|
4,176,911
|
|
|
$
|
4,457,324
|
|
|
$
|
4,633,825
|
|
Net investment income
|
|
$
|
2,504,062
|
|
|
$
|
2,586,575
|
|
|
$
|
2,529,950
|
|
|
$
|
2,694,549
|
|
Net increase in net assets resulting from operations
|
|
$
|
3,202,636
|
|
|
$
|
4,488,097
|
|
|
$
|
2,673,703
|
|
|
$
|
569,503
|
|
Net investment income per share-basic and diluted
|
|
$
|
0.28
|
|
|
$
|
0.29
|
|
|
$
|
0.28
|
|
|
$
|
0.30
|
|
Net increase in net assets resulting from operations per
share-basic and diluted
|
|
$
|
0.36
|
|
|
$
|
0.50
|
|
|
$
|
0.30
|
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
Qtr. 1
|
|
|
Qtr. 2
|
|
|
Qtr. 3
|
|
|
Qtr. 4
|
|
|
Total investment income
|
|
$
|
2,412,577
|
|
|
$
|
3,142,284
|
|
|
$
|
3,127,383
|
|
|
$
|
3,792,734
|
|
Net investment income
|
|
$
|
1,170,179
|
|
|
$
|
970,897
|
|
|
$
|
1,745,144
|
|
|
$
|
2,635,479
|
|
Net increase (decrease) in net assets resulting from operations
|
|
$
|
1,779,474
|
|
|
$
|
1,330,897
|
|
|
$
|
2,708,941
|
|
|
$
|
(3,274,436
|
)
|
Net investment income per share-basic and diluted
|
|
$
|
0.14
|
|
|
$
|
0.11
|
|
|
$
|
0.20
|
|
|
$
|
0.30
|
|
Net increase in net assets resulting from operations per
share-basic and diluted
|
|
$
|
0.21
|
|
|
$
|
0.16
|
|
|
$
|
0.32
|
|
|
$
|
(0.37
|
)
|
|
|
NOTE R
|
RELATED
PARTY TRANSACTIONS
|
We co-invested with MSC II in several existing portfolio
investments prior to the IPO, but did not co-invest with MSC II
subsequent to the IPO and prior to June 2008. In June 2008, we
received exemptive relief from the SEC to allow us to resume
co-investing with MSC II in accordance with the terms of such
exemptive relief. MSC II is managed by the Investment Manager,
and the Investment Manager is wholly owned by MSCC. MSC II is an
SBIC fund with similar investment objectives to Main Street and
which began its investment operations in January 2006. The
co-investments among Main Street and MSC II had all been made at
the same time and on the same terms and conditions. The
co-investments were also made in accordance with the Investment
Managers conflicts policy and in accordance with the
applicable SBIC conflict of interest regulations.
As discussed further in Note D to the accompanying
consolidated financials statements, Main Street paid certain
management fees to the Investment Manager during the year ended
December 31, 2007. Subsequent to the completion of the
Formation Transactions, the Investment Manager is a wholly owned
portfolio company of Main Street. At December 31, 2008 and
2007, the Investment Manager had a receivable of $302,633 and a
payable of $207,783, respectively, with MSCC related to
recurring expenses required to support MSCCs business.
F-40
MAIN
STREET CAPITAL CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE S
|
SUBSEQUENT
EVENTS
|
The recently enacted American Recovery and Reinvestment Act of
2009 (the 2009 Stimulus Bill) contains several
provisions applicable to SBIC funds, including the Fund, Main
Streets wholly owned subsidiary. One of the key
SBIC-related provisions included in the 2009 Stimulus Bill
increases the maximum amount of combined SBIC leverage (or SBIC
leverage cap) to $225 million for affiliated SBIC funds.
The prior maximum amount of SBIC leverage available to
affiliated SBIC funds was approximately $137 million, as
adjusted annually based upon changes in the Consumer Price
Index. Due to the increase in the maximum amount of SBIC
leverage available to affiliated SBIC funds, Main Street,
through the Fund, will now have access to incremental SBIC
leverage to support its future investment activities. Since the
increase in the SBIC leverage cap applies to affiliated SBIC
funds, Main Street will allocate such increased borrowing
capacity between the Fund and MSC II, an independently owned
SBIC that is managed by Main Street and therefore deemed to be
affiliated with the Fund for SBIC regulatory purposes. It is
currently estimated that at least $55 million to
$60 million of additional SBIC leverage is now accessible
by Main Street, through the Fund, for future investment
activities, subject to the required capitalization of the Fund.
Under the provisions of SFAS 159 and related guidance in
EITF 96-19,
Debtors Accounting for Modification or Exchange of Debt
Instruments, Main Street is analyzing whether the additional
SBIC leverage provisions under the 2009 Stimulus Bill meet the
definition of a significant modification of debt which would
automatically create an election date for the fair value option
under SFAS 159.
F-41
Report of
Independent Registered Public Accounting Firm
Board of Directors and Stockholders of
Main Street Capital Corporation
We have audited in accordance with the standards of the Public
Company Accounting Oversight Board (United States) the
consolidated financial statements of Main Street Capital
Corporation and the combined financial statements of Main Street
Mezzanine Fund, LP and Main Street Mezzanine Management, LLC
referred to in our report dated March 12, 2009, which is
included in Amendment No. 2 to the Registration Statement
and Prospectus. Our report on the consolidated financial
statements includes an explanatory paragraph, which discusses
the adoption of Statement of Financial Accounting Standards
No. 157, Fair Value Measurements in 2008 as
discussed in Note B to the consolidated financial
statements. Our audits of the basic financial statements include
the accompanying financial statement
Schedule 12-14
which is the responsibility of the Companys management. In
our opinion, this financial statement schedule, when considered
in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set
forth therein.
Houston, Texas
March 12, 2009
Schedule 12-14
MAIN
STREET CAPITAL CORPORATION
Schedule
of Investments in and Advances to Affiliates
Year
ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest or
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credited to
|
|
|
December 31,
|
|
|
Gross
|
|
|
Gross
|
|
|
December 31,
|
|
Company
|
|
Investments(1)
|
|
Income(2)
|
|
|
2007 Value
|
|
|
Additions(3)
|
|
|
Reductions(4)
|
|
|
2008 Value
|
|
|
CONTROL INVESTMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Café Brazil, LLC
|
|
12% Secured Debt
|
|
$
|
389,182
|
|
|
$
|
2,702,931
|
|
|
$
|
47,069
|
|
|
$
|
|
|
|
$
|
2,750,000
|
|
|
|
Member Units
|
|
|
30,681
|
|
|
|
1,250,000
|
|
|
|
|
|
|
|
250,000
|
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CBT Nuggets, LLC
|
|
Prime plus 2% Secured Debt
|
|
|
12,067
|
|
|
|
354,678
|
|
|
|
5,322
|
|
|
|
360,000
|
|
|
|
|
|
|
|
14% Secured Debt
|
|
|
272,276
|
|
|
|
1,805,275
|
|
|
|
54,725
|
|
|
|
180,000
|
|
|
|
1,680,000
|
|
|
|
10% Secured Debt
|
|
|
2,292
|
|
|
|
|
|
|
|
150,000
|
|
|
|
|
|
|
|
150,000
|
|
|
|
Member Units
|
|
|
225,000
|
|
|
|
1,145,000
|
|
|
|
480,000
|
|
|
|
|
|
|
|
1,625,000
|
|
|
|
Warrants
|
|
|
|
|
|
|
345,000
|
|
|
|
155,000
|
|
|
|
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ceres Management, LLC
|
|
14% Secured Debt
|
|
|
271,426
|
|
|
|
|
|
|
|
2,402,492
|
|
|
|
29,891
|
|
|
|
2,372,601
|
|
(Lambs)
|
|
Member Units
|
|
|
|
|
|
|
|
|
|
|
1,300,000
|
|
|
|
|
|
|
|
1,300,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condit Exhibits, LLC
|
|
13% Current/5% PIK Secured
|
|
|
245,195
|
|
|
|
|
|
|
|
2,310,454
|
|
|
|
37,260
|
|
|
|
2,273,194
|
|
|
|
Debt Warrants
|
|
|
|
|
|
|
|
|
|
|
300,000
|
|
|
|
|
|
|
|
300,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gulf Manufacturing, LLC
|
|
Prime plus 1% Secured Debt
|
|
|
77,870
|
|
|
|
1,188,636
|
|
|
|
11,364
|
|
|
|
|
|
|
|
1,200,000
|
|
|
|
13% Secured Debt
|
|
|
298,308
|
|
|
|
1,809,216
|
|
|
|
170,784
|
|
|
|
100,000
|
|
|
|
1,880,000
|
|
|
|
Member Units
|
|
|
281,837
|
|
|
|
472,000
|
|
|
|
628,000
|
|
|
|
|
|
|
|
1,100,000
|
|
|
|
Warrants
|
|
|
|
|
|
|
250,000
|
|
|
|
300,000
|
|
|
|
|
|
|
|
550,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hawthorne Customs &
|
|
13% Secured Debt
|
|
|
185,862
|
|
|
|
1,304,693
|
|
|
|
17,295
|
|
|
|
150,000
|
|
|
|
1,171,988
|
|
Dispatch Services, LLC
|
|
Member Units
|
|
|
18,200
|
|
|
|
435,000
|
|
|
|
|
|
|
|
|
|
|
|
435,000
|
|
|
|
Warrants
|
|
|
|
|
|
|
230,000
|
|
|
|
|
|
|
|
|
|
|
|
230,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hydratec Holdings, LLC
|
|
12.5% Secured Debt
|
|
|
734,496
|
|
|
|
5,588,729
|
|
|
|
22,600
|
|
|
|
300,000
|
|
|
|
5,311,329
|
|
|
|
Prime plus 1% Secured Debt
|
|
|
93,363
|
|
|
|
1,825,911
|
|
|
|
654,000
|
|
|
|
900,000
|
|
|
|
1,579,911
|
|
|
|
Member Units
|
|
|
|
|
|
|
1,800,000
|
|
|
|
250,000
|
|
|
|
|
|
|
|
2,050,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jensen Jewelers of
|
|
Prime plus 2% Secured Debt
|
|
|
90,543
|
|
|
|
1,180,509
|
|
|
|
19,491
|
|
|
|
156,000
|
|
|
|
1,044,000
|
|
Idaho, LLC
|
|
13% Current/6% PIK Secured Debt
|
|
|
213,914
|
|
|
|
1,044,190
|
|
|
|
90,401
|
|
|
|
130,000
|
|
|
|
1,004,591
|
|
|
|
Member Units
|
|
|
63,888
|
|
|
|
815,000
|
|
|
|
|
|
|
|
435,000
|
|
|
|
380,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Magna Card, Inc.
|
|
12% Secured Debt
|
|
|
|
|
|
|
|
|
|
|
1,958,776
|
|
|
|
1,958,776
|
|
|
|
|
|
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NAPCO Precast, LLC
|
|
Prime plus 2% Secured Debt
|
|
|
455,227
|
|
|
|
|
|
|
|
4,040,000
|
|
|
|
347,692
|
|
|
|
3,692,308
|
|
|
|
18% Secured Debt
|
|
|
1,424,035
|
|
|
|
|
|
|
|
7,140,000
|
|
|
|
678,462
|
|
|
|
6,461,538
|
|
|
|
Member Units
|
|
|
1,811,206
|
|
|
|
|
|
|
|
5,100,000
|
|
|
|
|
|
|
|
5,100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OMi Holdings, Inc.
|
|
12% Secured Debt
|
|
|
898,992
|
|
|
|
|
|
|
|
7,536,600
|
|
|
|
933,200
|
|
|
|
6,603,400
|
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
900,000
|
|
|
|
330,000
|
|
|
|
570,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quest Design &
|
|
10% Secured Debt
|
|
|
178,312
|
|
|
|
3,964,853
|
|
|
|
204,139
|
|
|
|
3,568,992
|
|
|
|
600,000
|
|
Production LLC
|
|
0% Secured Debt
|
|
|
|
|
|
|
|
|
|
|
2,000,000
|
|
|
|
600,000
|
|
|
|
1,400,000
|
|
|
|
Warrants
|
|
|
|
|
|
|
40,000
|
|
|
|
|
|
|
|
40,000
|
|
|
|
|
|
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
1,595,858
|
|
|
|
1,595,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TA Acquisition Group, LP
|
|
12% Secured Debt
|
|
|
386,811
|
|
|
|
1,813,789
|
|
|
|
56,211
|
|
|
|
1,870,000
|
|
|
|
|
|
|
|
Partnership Interest
|
|
|
96,211
|
|
|
|
3,435,000
|
|
|
|
|
|
|
|
3,435,000
|
|
|
|
|
|
|
|
Warrants
|
|
|
|
|
|
|
3,450,000
|
|
|
|
|
|
|
|
3,450,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technical Innovations, LLC
|
|
12% Secured Debt
|
|
|
|
|
|
|
748,716
|
|
|
|
|
|
|
|
748,716
|
|
|
|
|
|
|
|
Prime Secured Debt
|
|
|
|
|
|
|
249,572
|
|
|
|
|
|
|
|
249,572
|
|
|
|
|
|
|
|
Member Units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Universal Scaffolding &
|
|
Prime plus 1% Secured Debt
|
|
|
89,538
|
|
|
|
1,111,741
|
|
|
|
3,831
|
|
|
|
240,500
|
|
|
|
875,072
|
|
Equipment, LLC
|
|
13% Current/5% PIK Secured
|
|
|
607,672
|
|
|
|
3,136,274
|
|
|
|
175,235
|
|
|
|
151,509
|
|
|
|
3,160,000
|
|
|
|
Debt Member Units
|
|
|
|
|
|
|
1,025,000
|
|
|
|
|
|
|
|
1,025,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Uvalco Supply, LLC
|
|
Equity
|
|
|
100,000
|
|
|
|
|
|
|
|
1,575,000
|
|
|
|
|
|
|
|
1,575,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MAIN
STREET CAPITAL CORPORATION
Schedule
of Investments in and Advances to Affiliates
Year
ended December 31,
2008 (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest or
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credited to
|
|
|
December 31,
|
|
|
Gross
|
|
|
Gross
|
|
|
December 31,
|
|
Company
|
|
Investments(1)
|
|
Income(2)
|
|
|
2007 Value
|
|
|
Additions(3)
|
|
|
Reductions(4)
|
|
|
2008 Value
|
|
|
Wicks Acquisition, LLC
|
|
8% Secured Debt
|
|
|
|
|
|
|
|
|
|
|
78,000
|
|
|
|
78,000
|
|
|
|
|
|
|
|
12% Secured Debt
|
|
|
300
|
|
|
|
1,685,444
|
|
|
|
1,770,000
|
|
|
|
3,455,444
|
|
|
|
|
|
|
|
8% Secured Debt
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
|
|
30,000
|
|
|
|
|
|
|
|
12% Secured Debt
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
|
|
30,000
|
|
|
|
|
|
|
|
Member Units
|
|
|
|
|
|
|
|
|
|
|
360,000
|
|
|
|
360,000
|
|
|
|
|
|
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
210,000
|
|
|
|
210,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zieglers NYPD, LLC
|
|
Prime plus 2% Secured Debt
|
|
|
33,838
|
|
|
|
|
|
|
|
600,239
|
|
|
|
6,000
|
|
|
|
594,239
|
|
|
|
13% Current/5% PIK
|
|
|
164,258
|
|
|
|
|
|
|
|
2,705,579
|
|
|
|
42,142
|
|
|
|
2,663,437
|
|
|
|
Secured Debt Warrants
|
|
|
|
|
|
|
|
|
|
|
360,000
|
|
|
|
|
|
|
|
360,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Control Investments disposed of during the year
|
|
|
|
|
1,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total-Control
|
|
$
|
9,754,325
|
|
|
$
|
46,207,157
|
|
|
$
|
47,898,465
|
|
|
$
|
28,563,014
|
|
|
$
|
65,542,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AFFILIATE INVESTMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advantage Millwork
|
|
12% Secured Debt
|
|
$
|
394,820
|
|
|
$
|
2,547,510
|
|
|
$
|
426,620
|
|
|
$
|
18,688
|
|
|
$
|
2,955,442
|
|
Company, Inc.
|
|
Warrants
|
|
|
|
|
|
|
87,120
|
|
|
|
10,688
|
|
|
|
97,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American Sensor
|
|
Prime plus .5% Secured Debt
|
|
|
363,486
|
|
|
|
3,404,755
|
|
|
|
395,245
|
|
|
|
|
|
|
|
3,800,000
|
|
Technologies, Inc.
|
|
Warrants
|
|
|
|
|
|
|
750,000
|
|
|
|
|
|
|
|
500,000
|
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carlton Global
|
|
13% PIK Secured Debt
|
|
|
|
|
|
|
2,618,421
|
|
|
|
104,166
|
|
|
|
2,722,587
|
|
|
|
|
|
Resources, LLC
|
|
Member Units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CHMB, Inc.
|
|
12% Secured Debt
|
|
|
55,140
|
|
|
|
|
|
|
|
1,415,906
|
|
|
|
274,200
|
|
|
|
1,141,706
|
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
390,000
|
|
|
|
|
|
|
|
390,000
|
|
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
240,000
|
|
|
|
|
|
|
|
240,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Houston Plating & Coatings,
|
|
Prime Plus 2%
|
|
|
13,037
|
|
|
|
100,000
|
|
|
|
200,000
|
|
|
|
|
|
|
|
300,000
|
|
LLC
|
|
Member Units
|
|
|
410,550
|
|
|
|
2,450,000
|
|
|
|
300,000
|
|
|
|
|
|
|
|
2,750,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
KBK Industries, LLC
|
|
14% Secured Debt
|
|
|
618,065
|
|
|
|
3,730,881
|
|
|
|
206,619
|
|
|
|
|
|
|
|
3,937,500
|
|
|
|
8% Secured Debt
|
|
|
50,591
|
|
|
|
623,063
|
|
|
|
126,937
|
|
|
|
281,250
|
|
|
|
468,750
|
|
|
|
8% Secured Debt
|
|
|
27,617
|
|
|
|
|
|
|
|
712,500
|
|
|
|
262,500
|
|
|
|
450,000
|
|
|
|
Prime plus 2% Secured Debt
|
|
|
11,013
|
|
|
|
686,250
|
|
|
|
|
|
|
|
686,250
|
|
|
|
|
|
|
|
Member Units
|
|
|
43,436
|
|
|
|
700,000
|
|
|
|
75,000
|
|
|
|
|
|
|
|
775,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Laurus Healthcare, LP,
|
|
13% Secured Debt
|
|
|
415,285
|
|
|
|
2,934,625
|
|
|
|
75,375
|
|
|
|
735,000
|
|
|
|
2,275,000
|
|
|
|
Warrants
|
|
|
|
|
|
|
715,000
|
|
|
|
1,785,000
|
|
|
|
|
|
|
|
2,500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
National Trench Safety,
|
|
10% PIK Debt
|
|
|
89,451
|
|
|
|
314,805
|
|
|
|
89,451
|
|
|
|
|
|
|
|
404,256
|
|
LLC
|
|
Member Units
|
|
|
|
|
|
|
1,792,308
|
|
|
|
|
|
|
|
|
|
|
|
1,792,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MAIN
STREET CAPITAL CORPORATION
Schedule
of Investments in and Advances to Affiliates
Year
ended December 31,
2008 (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest or
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credited to
|
|
|
December 31,
|
|
|
Gross
|
|
|
Gross
|
|
|
December 31,
|
|
Company
|
|
Investments(1)
|
|
Income(2)
|
|
|
2007 Value
|
|
|
Additions(3)
|
|
|
Reductions(4)
|
|
|
2008 Value
|
|
|
Pulse Systems, LLC
|
|
14% Secured Debt
|
|
|
331,010
|
|
|
|
2,260,420
|
|
|
|
47,078
|
|
|
|
476,224
|
|
|
|
1,831,274
|
|
|
|
Warrants
|
|
|
|
|
|
|
350,000
|
|
|
|
100,000
|
|
|
|
|
|
|
|
450,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Schneider Sales
|
|
13% Secured Debt
|
|
|
97,026
|
|
|
|
|
|
|
|
1,981,656
|
|
|
|
71,684
|
|
|
|
1,909,972
|
|
Management, LLC
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
45,000
|
|
|
|
|
|
|
|
45,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation General Inc.
|
|
13% Secured Debt
|
|
|
1,047,372
|
|
|
|
3,501,966
|
|
|
|
98,034
|
|
|
|
3,600,000
|
|
|
|
|
|
|
|
Warrants
|
|
|
|
|
|
|
340,000
|
|
|
|
|
|
|
|
340,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turbine Air Systems, Ltd.
|
|
12% Secured Debt
|
|
|
181,787
|
|
|
|
905,213
|
|
|
|
94,787
|
|
|
|
1,000,000
|
|
|
|
|
|
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vision Interests, Inc.
|
|
13% Secured Debt
|
|
|
534,401
|
|
|
|
3,541,662
|
|
|
|
37,455
|
|
|
|
|
|
|
|
3,579,117
|
|
|
|
Common Stock
|
|
|
|
|
|
|
372,000
|
|
|
|
48,000
|
|
|
|
|
|
|
|
420,000
|
|
|
|
Warrants
|
|
|
|
|
|
|
375,000
|
|
|
|
45,000
|
|
|
|
|
|
|
|
420,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Walden Smokey Point, Inc.
|
|
14% Current / 4% PIK
|
|
|
50,400
|
|
|
|
|
|
|
|
4,800,533
|
|
|
|
96,000
|
|
|
|
4,704,533
|
|
|
|
Secured Debt Common Stock
|
|
|
|
|
|
|
|
|
|
|
600,000
|
|
|
|
|
|
|
|
600,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WorldCall, Inc.
|
|
13% Secured Debt
|
|
|
107,955
|
|
|
|
745,217
|
|
|
|
31,057
|
|
|
|
136,275
|
|
|
|
640,000
|
|
|
|
Common Stock
|
|
|
|
|
|
|
180,000
|
|
|
|
202,837
|
|
|
|
|
|
|
|
382,837
|
|
|
|
Warrants
|
|
|
|
|
|
|
150,000
|
|
|
|
|
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Affiliate Investments disposed of during the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total-Affiliate Investments
|
|
$
|
4,842,442
|
|
|
$
|
36,176,216
|
|
|
$
|
14,684,944
|
|
|
$
|
11,448,465
|
|
|
$
|
39,412,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
This schedule should be read in conjunction with Main
Streets Consolidated and Combined Financial Statements,
including the Consolidated and Combined Schedule of Investments
and Notes to the Consolidated Financial Statements. |
|
|
|
|
|
(1) |
|
The principal amount, the ownership detail for equity
investments and if the investment is income producing is shown
in the Consolidated and Combined Schedule of Investments. |
|
(2) |
|
Represents the total amount of interest, fees or dividends
credited to income for the portion of the year an investment was
included in Control or Affiliate categories, respectively. For
investments transferred between Control and Affiliate during the
year, the income related to the time period it was in the
category other than the one shown at year end is included in
Income from Investment disposed of during the year. |
|
(3) |
|
Gross additions include increases in the cost basis of
investments resulting from new portfolio investment , follow on
investments and accrued PIK interest, and the exchange of one or
more existing securities for one or more new securities. Gross
Additions also include net increases in unrealized appreciation
or net decreases in unrealized depreciation as well as the
movement of an existing portfolio company into this category and
out of a different category. |
|
(4) |
|
Gross reductions include decreases in the cost basis of
investments resulting from principal repayments or sales and the
exchange of one or more existing securities for one or more new
securities. Gross reductions also include net increases in
unrealized depreciation or net decreases in unrealized
appreciation as well as the movement of an existing portfolio
company out of this category and into a different category. |
Shares
Main
Street Capital Corporation
Common Stock
PROSPECTUS SUPPLEMENT
Morgan
Keegan & Company, Inc.
BB&T
Capital Markets
A
Division of Scott & Stringfellow, LLC
|
|
|
Ladenburg
Thalmann & Co. Inc.
|
|
|
Madison
Williams and Company
|
|
January , 2010